File photo of the Athabasca Oil Sands near Fort McMurray, Alta.Ben Nelms/Bloomberg
Paramount Resources Ltd. shares dropped nearly 8 per cent Friday after the Calgary-based oil producer agreed to pay $459.5-million for Canadian assets held by U.S.-based Apache Corp.
Paramount said after markets closed on Thursday that it would also merge with Trilogy Energy Corp., offering one of its shares for every 3.75 Trilogy shares that it doesn't already own. Both companies are controlled by Calgary oilman Clayton Riddell and his family.
The moves are the latest in a string of deals by companies in the stable of Mr. Riddell, a billionaire who also owns a stake in the Calgary Flames hockey club. Paramount and Trilogy are among producers that have shed assets in a bid to shore up finances to cope with dwindling cash flow through nearly four years of downturn.
With the latest deal, companies under the Riddell family's control have tallied roughly $3.2-billion in activity, including big asset sales by Paramount meant to allay investor concerns over high debt as oil prices crumbled.
RS Energy Group analyst Brook Papau said the latest moves give the company substantial room to grow in regions where competitors have notched solid returns.
However, he predicted Paramount would likely have to sell equity or issue debt to fund drilling, potentially dampening enthusiasm for the shares. Jim Riddell, chief executive officer of Paramount and Trilogy, did not respond to messages seeking comment Friday.
"They've done [share issues] in the past and those investors have been burned," Mr. Papau said. "Whether or not they want to give them the benefit of the doubt that they can execute this go-around is the real question."
The shares fell sharply early in Friday's session on the Toronto Stock Exchange before paring losses – a reaction Mr. Papau attributed to falling oil prices, rather than misgivings about the acquisitions.
The stock closed down almost 7 per cent at $17.45, leaving it up 47 per cent from this time last year but still a fraction of the $65 price it hit in 2014.
Last year, Paramount completed a $1.9-billion sale of Montney natural gas assets to Seven Generations Energy Ltd. The purchase price included 24.7 million Seven Generations shares that Paramount later offloaded for proceeds of $735-million.
That followed a $600-million sale of processing infrastructure to a unit of Pembina Pipeline Corp. This spring, Paramount and Trilogy sold a combined $200-million worth of properties. The buyers in both cases was a private company backed by Chinese capital, sources said.
Under the latest deals, Paramount is increasing production to roughly 67,000 barrels of oil equivalent a day (boe/d), lifting output to a forecast 90,000 boe/d by the fourth quarter, assuming the transactions close. It said it would pay for the Apache acquisition with cash on hand and that it may sell some of the acquired properties in southern Alberta.
The company also gains an expanded footprint in the Montney and Duvernay exploration regions in British Columbia and Alberta, respectively, where producers have flocked in search of higher-priced petroleum liquids.
Barlcays PLC analysts called the transactions a mixed bag for Paramount, noting leverage ratios are likely to climb as the company overspends to grow.
Indeed, the company is bulking up as oil prices have tumbled back under $50 (U.S.) a barrel, pressured by persistent oversupply concerns. West Texas intermediate crude closed at $44.23 a barrel on Friday.
The downturn has prompted a mass exodus of major energy companies from Canada's oil industry, stoking debate about the competitiveness of the region compared with fast-growing U.S. shale deposits.
Apache joins sellers such as Royal Dutch Shell PLC and ConocoPhillips Co., which have sold off or reduced positions in the oil sands in favour of investing in higher-return projects elsewhere.