CALGARY — Two Calgary-based oil and gas producers made significant acquisitions Monday in moves to diversify away from natural gas and expand into a promising new energy field in western Saskatchewan.
Crescent Point Energy Corp. (TSX:CPG), one of the dominant players in Saskatchewan’s oil scene, said it is buying privately held Wave Energy Ltd. in an all-stock deal worth $665.3 million, as well as other oil assets in the Prairie province.
Also Monday, Daylight Resources Trust (TSX:DAY.UN) said it is acquiring Highpine Oil & Gas Ltd. (TSX:HPX) in a deal worth $530, tilting its portfolio away from natural gas and toward more lucrative oil developments.
Monday’s deals reflect a growing consolidation trend in the Canadian oilpatch as energy trusts get bigger to prepare for the end of tax breaks for trusts that go into effect in 2011. In addition, companies are seeking to boost oil and gas reserves at attractive prices in the current low natural gas price environment to cash in when prices eventually rise.
Strategic considerations were also at play in the Crescent Point deal since the Wave takeover gets Crescent Point further access to the promising Lower Shaunavon resource play in southwestern Saskatchewan.
Like the more developed Bakken oil formation in the province’s southeast, the Lower Shaunavon requires advanced drilling and fracturing techniques.
“Wave has done a tremendous job of capturing and developing the premier position in the emerging Lower Shaunavon play,” Crescent Point chief executive Scott Saxberg said in a statement.
He noted that the Lower Shaunavon is in the same development stage as the Bakken was three years ago, when Crescent Point acquired Mission Oil & Gas.
“Wave has a first mover advantage in the Lower Shaunavon in the same way that Mission had in the Bakken,” Saxberg said.
Further beefing up its position in Saskatchewan, Crescent Point said it has inked deals worth $258.5 million to acquire properties in the province’s southeast and southwest.
It did not identify the selling company. But in a separate release Provident Energy Trust (TSX:PVE.UN) announced Monday it had sold non-core oil and gas assets in Saskatchewan.
The Crescent Point acquisitions come weeks after the birth of another major oil player in Saskatchewan. Petrobank Energy & Resources Ltd. (TSX:PBG) plans to merge its Canadian business unit with fellow Bakken player TriStar Oil & Gas Ltd. (TSX:TOG), creating a new firm called Petrobakken.
Meanwhile, Daylight said its acquisition of Highpine will create “an emerging senior energy player” with 38,000 barrels of oil equivalent output per day.
“The transaction with Highpine takes us to the next level, combining the strong balance sheet and cash flow of Highpine with the exceptional resource play inventory of Daylight,” Daylight CEO Anthony Lambert said in a release.
Both Crescent Point and Daylight are growing by doing deals like these ahead of new federal rules that will begin taxing income trusts like corporations beginning in 2011, said Les Stelmach, portfolio manager with Bissett Income Fund.
Crescent Point has already converted to a corporation, but plans to keep up high payouts to its investors. It’s increased girth will help it do that.
“We view Crescent Point probably as a textbook trust conversion, where it kept its initial investor base, which were income interested. It’s kept its commitment to them by paying a very high dividend,” Stelmach said.
Daylight, which is expected to make the leap from trust to corporation soon, will also likely strive to maintain its payouts.
“In both the Crescent Point and Daylight deals, the reason they were both able to complete these, I think, is that the market still assigns a fairly high value to trusts, or high-dividend paying corporations,” Stelmach said.
“Both entities used their relatively high valued paper to complete acquisitions which had further their goal.”
Energy trusts have always been active buyers but historically they have tended toward targeting more mature properties that produce steady cash flow.
“Some of these deals which are being done now have possibly more of a growth aspect to it. They’re trying to buy assets or buy companies that have the potential to grow production and have a bit more of a balance between growth and income,” Stelmach said.
Crescent Point shares dipped slightly to $35.76 in trading on the Toronto Stock Exchange Monday.
Daylight units also fell a bit to $8.10. Highpine shares soared 19.3 per cent to $6.74.