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Merger of Leading Calgary Shale Companies Combining Potential in Williston, Uinta Basins

A pair of independent Calgary companies with operations that straddle the border between Western Canada and the United States are combining in a friendly takeover by Crescent Point Energy Corp. of Legacy Oil & Gas Inc.

As part of the deal, Crescent Point scoops up 2,200 drilling locations that Legacy has reported identifying on its 422,000 acres of Williston Basin resource rights in North Dakota, Saskatchewan and Alberta, plus a Uinta Basin interest in Utah.

No cash is changing hands in the all-corporate paper deal. The transaction is valued at C$1.5 billion ($1.2 billion), counting assumed Legacy debt of C$967 million ($774 million) plus an agreed price of one Crescent Point share worth C$30 ($24) for every 10 Legacy shares.

Both firms are Canadian leaders in shale development of tight oil and natural gas liquids, using adaptations of horizontal drilling and hydraulic fracturing in numerous formations known variously on both sides of the border as Bakken, Midale, Shaunavon, Torquay, Taylorton, Heward, Star Valley, Spearfish and Frys Antler.

The Legacy asset package includes reserves of around 154 million boe, with current production of 22,000 boe/d. Nearly 90% of the production and corporate reserves inventory are oil and liquids.

Crescent Point president Scott Saxberg described the takeover as consistent with his firm's core strategy of acquiring large oil pools and development targets where advanced technology can generate big production gains. Legacy is "a mix of assets with significant growth potential, low-decline rates and waterflood potential."

The takeover emerged from a search for an escape route from a financial squeeze that began early this year, Legacy explained. "With the precipitous drop in oil prices beginning in July 2014, Legacy's valuation has come under pressure. The company's financial leverage, which was improving in the first half of 2014, also began to erode."

Crescent Point is about three times bigger than Legacy and relatively less saddled with debt. Production by the new combination is forecast to be 162,500 boe/d, with oil and gas liquids accounting for about 80% of the total. To fund corporate needs and further growth, the company announced plans for a C$600 million ($480 million) share sale.

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