Pure plays are very much in vogue in the oil and gas business, as Provident Energy Trust used a $460-million merger with junior energy play Midnight Oil Exploration to effectively split the trust in two.
Provident was a mini-conglomerate, proud owner of both Alberta oil and gas properties and a natural gas extraction, storage, transportation and marketing business. Unless you're a senior energy play - think Suncor or Exxon Mobil - that divided focus is out of step with the times. Witness EnCana's decision last year to hive off its heavy oil holdings as Cenovus Energy.
Provident is spinning out what's known as its upstream property holdings by setting them up as an independent play that's united with Midnight Oil in a deal that amounts to a reverse takeover.
Provident will get $120-million in cash from Midnight Oil , and that money will stay in the trust, which will be entirely focused on the natural gas processing.
The new oil and gas play will be created by handing 324 million shares in Midnight Oil to Provident's unit holders. When the dust settles, the TSX will be home to a new pure play on oil and gas that is 81 per cent owned by Provident's unit holders, and 19 per cent owned by existing Midnight Oil shareholders.
Midnight Oil CEO Fred Woods will run this mid-tier oil company.
There's a new boss coming at Provident, as Douglas Haughey takes the reins from incumbent CEO Thomas Buchanan, who ran the company for the past 17 years. Mr. Haughey is experienced in what's known as the midstream of the oil and gas business, and was mostly recently CEO at Spectra Energy Income Fund.
That's not the end of the news from Provident on Tuesday. The company is also paying $196-million to close out oil and natural gas swaps set up by its midstream division. The trust made this move with the expectation that getting rid of the derivatives will improve its ability to generate cash for unitholders.
It's not the simplest break up in the world, nor is it cheap, as Provident pegs the price of doing this deal at $25-million. But this transaction is finished, both Provident and Midnight Oil will be more focused companies.
On the advisory front, National Bank Financial and Cormark Securities Inc. are Midnight Oil's financial advisors, with an assist from Paradigm Capital as a strategic advisor.
TD Securities stepped up as financial advisor to Provident, and Morgan Stanley get a nod as a strategic adviser on the merger.