Calgary-based Compton Petroleum Corp., which focuses its exploration efforts on extracting shallow and deep natural gas from the Western Canadian Sedimentary Basin, is looking for a buyer -- a sales process it expects to complete by this fall.
Despite a 9% increase to its reserves in 2007, the independent's board of directors, on the unanimous recommendation of a special committee of Compton, recommended putting the company on the market. Last year the exploration and production (E&P) company completed 322 wells and replaced 192% of its production at an all-in finding, development and acquisition cost of C$9.98/boe. Compton added 2.3 million boe proved reserves and 22 million boe proved plus probable reserves to its base -- after production and asset sales and including acquisitions -- giving it total reserves estimated at 271 million boe at the end of 2007.
Compton did not elaborate as to why the company is for sale. In fact, last year CEO Ernie Sapieha said that "all the elements necessary" were in place for the company's next growth phase (see NGI, July 16, 2007). Based on supply-and-demand fundamentals, Compton expected to see "longer-term strengthening of natural gas prices" through 2007, which indeed occurred.
"Our longer-term plans call for approximately 600 wells in 2008, increasing to 800 in 2009 and up to 1,000 wells in 2010, given favorable industry conditions and commodity prices," Sapieha told investors and financial analysts during a conference call last July. "We plan to aggressively implement these plans, which will result in Compton becoming a pure natural gas company, with activities focused on four natural gas resource plays in two core areas in southern and central Alberta."
To become a "pure natural gas resource play story," Sapieha said then that the company would sell its noncore oil properties. Most of the sales were expected to be completed by the end of 3Q2007, and another C$50 million of "minor" properties were to be put up for sale later in 2007. Earlier this year in its 1Q2008 earnings report, Compton stated that it was "largely pleased" with its initial efforts to strengthen the company and to sell noncore properties. Gas production rose 15% to 170 MMcf/d in 1Q2008 from 1Q2007, and total 1Q2008 production averaged 33,274 boe/d. It also drilled 99 wells with a 96% success rate in the first three months of this year.
During the transition period to a new owner, Compton said it would continue to focus on developing its Southern Alberta Hooker Basal Quartz play and the Central Alberta Niton/Caroline areas.
"The company recognizes the significant value of the efforts of its dedicated professional and support staff and the importance of maintaining an on-going capital expenditure program during this transition period," Compton stated. "Most of the company's staff are equity holders of the company and have a direct interest in realizing the maximum value from the sale process.
"On the capital expenditure front, all efforts will be directed to maximizing shareholder value during the sale period. Of particular note, the company has recently experienced considerable success in applying horizontal drilling and multi-stage frac technology to several of its resource plays at Niton and Hooker and will focus its efforts on these opportunities during the sale process to ensure value recognition," it stated.
"Given U.S. E&P companies' strategic focus away from Canada, we believe it is unlikely that a U.S. E&P company will purchase Compton," said SunTrust Robinson Humphrey/the Gerdes Group. "Moreover, our analysis suggests the company will be challenged to obtain a meaningful premium (10%+) over current market value."
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