Three small Canadian oil companies agree to merge

Thu Dec 20, 2012 1:12pm EST
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - 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 PCE.TO, AvenEx Energy Corp AVF.TO and Charger Energy Corp CHX.V 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 companies said.

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.   Continued...