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Vermilion Energy to Acquire Canadian Rival for C$1.4 Billion


Vermilion Energy Inc. VET, an oil and gas producing company, has agreed to acquire its rival Spartan Energy Corp. in a C$1.4 billion ($1.11 billion) deal. The transaction is expected to enable Vermilion Energy to boost its North American light oil production. Notably, annual production of Spartan Energy is expected around 23,000 barrels of oil equivalent per day (Boe/d) this year, of which 91% is oil.

Terms of the Deal

As per the deal, Spartan Energy shareholders would receive 0.1476 shares of Vermilion common stock for each share they hold, representing a total value of C$1.23 billion. Vermilion will also assume around C$175 million of Spartan Energy’s debt.

At Spartan Energy’s Friday’s closing stock price of C$6.19, the deal values the company’s shares at C$6.50, or a 5% premium. A C$40 million reciprocal break fee is assumed in the deal as well. The acquisition is expected to close around Jun 15, 2018.

Acquisition Rationale

Since the 2014 acquisition of Elkhorn Resources, which marks Vermilion Energy's entrance in southeast Saskatchewan, the company explored expansion opportunities in the region. In 2017 alone, it annexed around 30 sections of land to its southeast Saskatchewan core area.

In line with the company's merger and acquisition criteria, the buy off of Spartan Energy is expected to be a value-adding investment for Calgary, Canada-based Vermilion Energy. Apart from increasing its hold in the region with 480,000 acres of light oil producing property, it will add low decline assets to Vermilion Energy's portfolio, which holds huge investment opportunities in the future. The additional production from the acquisition is expected to help Vermilion Energy reach its revised 2018 output guidance of 86,000-90,000 Boe/d. Moreover, proved and probable reserves of 113.5 million barrels will be added to Vermilion Energy's portfolio. The company increased its capital budget to C$430 million following the acquisition from C$325 million earlier.

Additionally, operational synergies from the deal are expected to benefit Vermilion Energy in a tough energy environment in Canada, where lack of infrastructure is currently leading to discounted, and volatile pricing for crude and gas.

Price Performance

Vermilion Energy has lost 9.4% in the past year compared with 0.9% loss of its industry.

Zacks Rank and Stocks to Consider

Vermilion Energy carries a Zacks Rank #3 (Hold). If you are interested in the oil and energy sector, you can opt for better-ranked stocks like CNOOC Limited CEO, Oasis Midstream Partners LP OMP and Continental Resources, Inc. CLR. While CNOOC sports a Zacks Rank #1 (Strong Buy), Oasis Midstream and Continental Resources hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hong Kong-based CNOOC is an integrated energy company. Its revenues for 2018 are anticipated to improve 51.3% year over year, while its bottom line is expected to increase 80.8%.

Houston, TX-based Oasis Midstream is an integrated energy partnership. Its revenues for 2018 are anticipated to improve 29.3% from the prior-year quarter, while its bottom line is expected to increase 337.2%.

Oklahoma City, OK-based Continental Resources is an oil and gas exploration and production company. Its revenues for first-quarter 2018 are estimated to soar 55.7% from the year-ago quarter’s figure. For 2018, the bottom line is likely to be up 376.5%.

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