CALGARY, ALTA. – Tamarack Valley Energy Ltd. and Headwater Exploration Inc. are set to join forces in a $10-billion all-stock transaction that will create a major new player in oil production in northern Alberta’s Clearwater region.
The companies said the proposed combination brings together two established Clearwater producers with low-cost and high-margin production profiles, low corporate decline rates, modest reinvestment requirements and low corporate break-even oil prices.
“The transaction brings together two leading Clearwater producers, each characterized by low-cost, high-margin production, low corporate decline rates, modest reinvestment requirements and low corporate break-even oil prices,” the companies said in a news release.
According to Tamarack and Headwater, the combined company will also benefit from decades of Clearwater drilling and waterflood inventory, while generating meaningful operating and capital synergies and achieving greater scale across the play.
Under the terms of the proposed transaction, Headwater shareholders will receive one Tamarack share for each Headwater common share they own. Following the completion of the deal, Tamarack shareholders are expected to hold 66.5 per cent of the combined company, while Headwater shareholders will own the remaining 33.5 per cent.
Leadership changes planned for the new company
A new leadership structure is also expected to take effect in the new year. Tamarack’s current president, Steve Buytels, will lead the merged company, while Tamarack CEO Brian Schmidt will transition into the role of executive chairman.
The transaction remains subject to approval from shareholders of both companies.
Alongside the proposed merger, Tamarack announced plans to increase its quarterly dividend from five cents per share to six cents per share.
Non-core assets to form Tributary Exploration
As part of the transaction, certain non-core exploration assets located in Alberta, Saskatchewan and New Brunswick will be transferred into a newly created company, Tributary Exploration Inc.
Tamarack Valley shareholders are expected to own two-thirds of Tributary, with Headwater shareholders holding the remaining stake. The new company is expected to become publicly listed and will be operated by Headwater’s current management team.
The transaction has received a positive assessment from Robert Mann, an analyst at Desjardins Securities, who said the combination makes strategic sense and aligns with his firm’s expectation that further consolidation should occur among small- and mid-sized operators in the Clearwater region.
“For (Tamarack Valley) shareholders, the transaction provides scale through the addition of top-tier inventory, expanded secondary recovery opportunities, an improved long-term growth profile and a lower corporate decline rate,” Mann wrote.
For Headwater shareholders, Mann noted that, despite what he described as a modest discount on the implied share consideration, investors will retain exposure to a larger pure-play Clearwater company with deeper inventory and significant potential for synergy capture.
They will also participate in the Tributary Exploration spin-out, which will be led by Headwater’s management team and will benefit from that team’s established track record of creating value through similar corporate structures.
