* Share-exchange aimed at boosting market value
* Focus to be on light oil in Alberta
* AvenEx shares drop, Pace and Charger gain
* Dividends to paid monthly
By Jeffrey Jones
CALGARY, Alberta, Dec 20 A trio of small oil and
gas companies said on Thursday they have agreed to combine to
form a mid-sized Canadian producer, hoping a focus on light
crude and monthly dividend policy will generate more value for
investors than they were garnering individually.
Pace Oil and Gas Ltd, AvenEx Energy Corp
and Charger Energy Corp said they would offer new shares
in a combined operation known as Spyglass Resources Corp that
will produce about 18,000 barrels of oil equivalent a day in
various regions of Alberta.
Based on the values of the companies' shares as spelled out
in the agreement, the combined operation would have a market
capitalization of about C$425 million ($430 million).
It will be led by former Provident Energy executives, Tom
Buchanan as chief executive and Dan O'Byrne as president, the
Buchanan said each of the companies has been undervalued
despite having assets in many of the regions currently producing
light crude, a grade that is not getting slapped with the deep
discounts that Canadian heavy oil is currently fetching.
Pace, the largest of the three, was having trouble funding
its growth plans; AvenEx was a diversified company with a
marketing arm that will now be put up for sale; and Charger was
over-indebted for the current market conditions, Buchanan said.
"So when you put all three companies together, while we all
had our warts, we sort of take care of each other's challenges,"
he said in a conference call. "By putting the three companies
together, we create a platform that we think is very strong."
A big draw is that the combined firm will have low rates of
production decline, which lends itself to paying a healthy
dividend, Buchanan said.
Spyglass will initially set a monthly dividend of 3 Canadian
cents a share, equaling 35 percent to 45 percent of cash flow,
the companies said. Buchanan said that will be reviewed monthly
and will be based on factors such as commodity prices, hedging
polices and operational performance.
The properties are in Alberta geological zones such as
Halkirk-Provost Viking, Randell Slave Point and Gilwood and the
Pembina Cardium, where companies are using horizontal drilling
and hydraulic fracturing techniques to unlock light oil reserves
from tight rock formations.
Under the deal, 1.3 Spyglass shares would be exchanged for
each Pace share, one Spyglass share for each AvenEx share, and
0.18 Spyglass shares for each Charger share.
The transaction values Pace shares at C$4.32 each, AvenEx
shares at C$3.32 each, and Charger shares at 60 Canadian cents
each, the firms said.
AvenEx investors were less certain. Its shares sank 44
Canadian cents, or 13 percent, to C$2.88 on the Toronto Stock
Pace was up 17 Canadian cents, or 5 percent, at C$3.57, and
Charger's shares on the TSX Venture Exchange surged 43 percent
to 48.5 Canadian cents.
Along with the amalgamation, AvenEx agreed to sell its Elbow
River Marketing business for C$80 million.
Capital spending for 2013 is budgeted at C$80 million to C$90
The companies said they would hold meetings for their
shareholders in February to vote on the transaction. Two-thirds
of each company's shareholders must approve the deal for it to
proceed, they said.
The deal is expected to close in February.