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Big Canadian shale play sale as Seven Generations continues expansion

🕐 2 min read

Seven Generations Energy Ltd. agreed to buy assets in Alberta’s Montney shale play from Paramount Resources as it presses ahead with an expansion during the industry’s worst downturn in decades.

The producer will pay about C$1.3 billion ($1 billion) in cash and equity for the properties, adding about 30,000 oil-equivalent barrels a day of production, 155 net sections of land and 199 million barrels in proved reserves near its existing Kakwa River operations, Calgary-based Seven Generations said in a statement on Wednesday. The company also agreed to assume $450 million in debt, bringing the deal’s total value to about C$1.9 billion.

“This asset merger of neighboring and early-life development lands will open the door to new operational and investment synergies in our Kakwa River Project,” Seven Generations Chief Executive Officer Pat Carlson said in the statement. “Our drilling, completions and production innovations are delivering liquids-rich natural gas that ranks among the lowest supply cost in North America.”

Seven Generations has topped Canadian energy stocks over the past year as it increases production of gas and hydrocarbon liquids at profitable, low-cost operations — in defiance of a market rout that sent crude to a 12-year low and gas to its cheapest since 1998 earlier this year. The Montney shale formation, which straddles Alberta and British Columbia, holds enough marketable gas to supply Canada for about 145 years at recent consumption rates, according to the country’s National Energy Board.

Seven Generations’ shares jumped as much as 11 percent and traded 7.2 percent higher at C$26.89 as of 11:55 a.m. in Toronto. Paramount was up 10 percent after earlier soaring as much as 21 percent.

“The market has a lot of confidence in these guys,” Ian Macqueen, equity analyst at Paradigm Capital Inc., said on Wednesday, adding he expected the buyer’s stock to gain 10 percent in two days. “Seven Generations is very, very good at what they do. Now they have a larger base of area to do what they are best at.”

Seven Generations, which has almost tripled output in less than two years, said it’s revising its 2016 production forecast to between 120,000 and 125,000 barrels of oil equivalent a day. The company’s second-quarter output was estimated at more than 115,000 barrels of oil equivalent a day, surpassing its original 2016 guidance of 100,000 to 110,000 barrels of oil equivalent, according to the statement.

The producer’s capital investment estimate for the year was raised to between C$1.05 billion and C$1.1 billion, from C$900 million to C$950 million, subject to closing of the transaction.

Peters & Co. Ltd. and RBC Capital Markets acted as financial advisers to Seven Generations, while Credit Suisse provided strategic advice. BMO Capital Markets acted as financial advisers for Paramount while Norton Rose Fulbright Canada acted as legal adviser.

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