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(Reuters) - Vero Energy Inc VRO.TO said it will sell some of its natural gas assets in West Central Alberta to a private oil and gas company for C$209 million ($205.2 million) to reduce debt and focus on light oil drilling, sending its shares up 27 percent.
"In the third quarter, the company had about C$170 million of debt, and this deal would wipe off that. Hence, the new company would essentially be debt free. It's a fresh start for the company," Stifel Nicolaus analyst Michael Zuk told Reuters.
A portion of the proceeds will be distributed to shareholders, the company, which did not name the buyer, said.
The Calgary, Alberta-based oil and natural gas producer, which has a market value of C$101.9 million, said the divestment would enable it to focus on expanding its light oil assets in the Cardium formation in Alberta.
"The management has found buyers for about 80 percent of the company for C$209 million, so there is a good valuation up there. However, the big question is what value can they derive from the Cardium drilling process," Zuk, who has a hold rating on the company's stock, said.
Vero Energy, which explores and produces natural gas, natural gas liquids and oil in Western Canada, said it expects exit production of 2,800-3,100 barrels of oil equivalent per day (boe/d) for this year.
Shares of Vero were trading up at C$2.58 on Tuesday on the Toronto Stock Exchange. The stock, which hit a high of C$2.65 earlier, was one of the top percentage gainers on the exchange.
($1 = 1.0183 Canadian dollars)
Additional reporting by Maneesha Tiwari in Bangalore; Editing by Sriraj Kalluvila