Calgary-based juniors TriStar Oil & Gas Ltd. and Real Resources Inc. have combined forces to move into the intermediate sector of the Canadian oil patch. The merged company, which will trade under the TriStar name with TriStar management at the helm, will have combined production of more than 15,000 boe/d.
The deal is valued at around C$1 billion (US$922.3 million). Real’s market value is about C$422 million, compared with TriStar’s C$332 million. The new company will be weighted 60% to oil and 40% to natural gas.
Brett Herman, currently president and CEO of TriStar, will continue to run the company, and the remainder of the executive management team will be primarily comprised of TriStar’s existing management.
“This transaction represents an important step in the planned evolution of TriStar,” said Herman. “From our inception in January 2006 we have been able to assemble a high-quality asset base capable of efficient future growth through the drill bit. We are excited about the growth potential of the combined entity and we look forward to continuing to successfully execute our proven strategy of acquiring, exploiting and exploring.”
In 2006, Real reported a profit of C$23 million on total revenues of C$214 million. TriStar’s profit last year was C$6 million on revenues of C$57.7 million.
Despite its larger size, Real earlier in the year said it was seeking strategic alternatives after higher-than-expected natural declines cut production volumes and soured market views on management.
Real’s exploration focus is in southeastern Saskatchewan and the Western Canada Sedimentary Basin. Entering 2006 Real budgeted C$250 million to drill about 240 wells. However, amid falling natural gas prices last year, Real deferred the drilling of 125 shallow gas wells. By the end of the year, Real had spent C$232 million to drill 114 gross (94.6 net) wells with an average working interest of 83% and an 89% net well success rate. Real operated 92 of the 114 wells. Development drilling represented 66% of the drilling activity, while exploration represented 34%.
At year-end 2006, Real held 804,916 gross (655,055 net) acres of land across its core operating areas. Real has 689 square miles of 100% proprietary 3-D seismic and another 467 square miles of trade/partner 3-D seismic. Real’s total production averaged 11,100 boe/d in 2006, comprised of 5,891 bbl/d of crude oil and natural gas liquids and 31,254 Mcf/d of natural gas.
TriStar’s major areas of operation are in southeastern Saskatchewan, southeastern Alberta, Redwater and Ante Creek. TriStar in April revised upward its 2007 average daily and exit rate production estimates to more than 5,150 boe/d, with a 2007 production exit rate of more than 5,900 boe/d.
Real shareholders will hold one new share for each already owned, while TriStar shareholders will receive 0.4762 of a share of the new company for each share they hold in TriStar. TriStar shareholders will own about 42% of the company, and Real shareholders 58%. The transaction is subject to regulatory approval and the approval of at least two-thirds of shareholders of both companies who vote on the combination, sometime in mid or late summer.
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