Nova

Strength in numbers emerged Monday as a survival strategy for depressed fossil fuel prices and the Covid-19 pandemic among independent Canadian oil and gas firms as announcements of a merger and a proposal for a second pairing were made.

Whitecap Resources Inc. and NAL Resources Ltd. made a corporate marriage deal valued at C$155 million ($116 million), while Obsidian Energy Ltd. posted an offer to discuss terms for a combination with Bonterra Energy Corp.

“Whitecap’s increased scale and financial strength is expected to enhance its credit profile and reduce its cost of capital,” said the announcement of the arrangement with NAL.

“Both equity and debt capital markets have been sending a clear signal for over two years that they are no longer supportive of small to mid-cap sized upstream energy producers,” said Obsidian’s proposal to Bonterra.

No cash would change hands in either exploration and production (E&P) merger.

Whitecap plans to trade 58.4 million of common shares for all the stock of NAL, which is held as a private investment by Manulife Financial Corp. Combined output in 2021 is forecast to to be 81,000-83,000 boe/d.

Obsidian disclosed an initial offer to pay two common shares for each share of Bonterra. Obsidian predicted the combination would have oil and gas production equivalent of 35,000 boe/d.

Bonterra gave no immediate reply to the public overture. Obsidian disclosed making merger proposals without hearing a clear answer since June.

Bonterra recently announced an agreement for a loan of up to C$45 million ($34 million) from a Covid-19 emergency credit program offered to the industry by the Canadian government’s Business Development Bank of Canada.

“Engaging with Obsidian Energy is a far better outcome for Bonterra shareholders,” said the public proposal. “Adding more debt to an already over-levered balance sheet is a vastly inferior outcome.”

The E&P marriage of Whitecap-NAL and Obsidian’s courtship of Bonterra echo an announcement earlier in Augustof a C$111 million ($83.3 million) friendly takeover of Montney shale gas producer Painted Pony Energy Ltd. by Canadian Natural Resources Ltd.

In combination with soft investment markets for E&P shares, severe energy price lows inflicted by the pandemic “deprived Painted Pony’s asset base of the capital necessary to fund meaningful development.”