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Decades of free inventory from one deal: Vermilion Energy buys Leucrotta Exploration for $477 million

As part of its effort to expand its Montney Shale play, Vermilion Energy Inc. recently acquired Leucrotta Exploration Inc. for a net cash purchase price of CA$477 million.

Dion Hatcher, Vermillion's president, believes the Leucrotta acquisition is integral to the company's strategic plan due to the asset's scalability and expected availability of high-value Tier 1 drilling inventory for at least the next 20 years.

Located in the Mica region of Northeast British Columbia and Northwestern Alberta, Leucrotta is a publicly-traded company focused on Montney hydrocarbon exploration. Leucrotta's acquisition by Vermilion follows its agreement to purchase Equinor Energy Ireland Ltd. last November for CA$556 million (US$434 million).

In addition to adding Equinor Energy Ireland to Vermilion's gas holdings, this acquisition will broaden the company's European gas exposure while also helping it to reduce debt faster.

After completing both deals, Vermillion aims to reduce debt by $1 billion by the end of the year, three years ahead of schedule.

Vermilion anticipates being debt-free by end-of-2023 at current strip prices. As for the company's near-term strategic objectives, Top management also plans to complete them without issuing any more shares, which maximizes free cash flow for shareholders and prevents dilution.

It is anticipated that Leucrotta's acquisition will close by the end of May. While closing of the Corrib acquisition is scheduled for the second half of 2022.

According to the Leucrotta acquisition agreement, Vermilion will pay CA$1.73 per share in cash for all of the company's issued and outstanding shares.

Mica is the primary Leucrotta asset, consisting of 81,000 gross (77,000 net) contiguous acres of Montney mineral rights which border both Alberta and British Columbia. The asset is expected to produce approximately 13,000 barrels of oil equivalent per day in 2023, with a plateau production level of 28,000 barrels per day anticipated over the next few years.

As of today, Vermilion has identified 275 high-quality, high-return, low-risk multi-zone drilling prospects. Top management believes, these prospects represent 20 or more years of low-risk, self-funding, high-deliverability drilling.

Assuming the anticipated May closing date, Vermilion is increasing its capital budget for E&D in 2022 to $500 million and increasing guidance for production from 86,000 to 88,000 boe/d to take into account the Leucrotta acquisition.

The acquisition deal also involves the transfer of a portion of the Leucrotta land base and approximately CA$43.5 million of cash to a new company, which will be managed by the existing Leucrotta team.

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Canadian Assets on Sale: Energy Transfer Sells Gas Processing Bussines to Pembina-KKR for $1.3 Billion

Under the agreement, Energy Transfer will sell its 51% interest in Energy Transfer Canada to the Pembina-KKR joint venture, for more than CA$1.6 billion (US$1.3 billion) including debt and preferred equity. KKR's funds already own the remaining stake. TC’s assets include 6 natural gas processing plants with a combined operating capacity of 1.29 Bcf/d and an 848-mile naturalgas gathering and transportation network in the Western Canadian Sedimentary (WCS) basin. While this process is underway, Pembina and KKR will combine their Western Canadian natural gas processing assets into a single, new joint venture entity — Newco, owned 60% by Pembina and 40% by KKR. This new entity is expected to have a natural gas processing capacity of about 5 Bcf/d or about 16% of Western Canada’s total processing capacity.

Great Western Petroleum's assets will be acquired by PDC Energy for $1.3 billion. Via this deal, PDC Energy’s position in the D-J basin increases roughly to 230,000 net acres. Denver-based Great Western has core operations in Weld and Adams counties in Colorado with 54,000 net acres and about 55,000 boe/d (42% oil / 67% liquids) of PDP. As part of the agreement, the acquisition will be financed by issuing 4 million shares of common stock to existing Great Western shareholders and by providing $543 million in cash to the company. All in all, PDC expects to increase its total production by 25% and its oil production by 35% as a result of the deal. The deal should also result in some synergies including a 15% reduction in overall cost per BOE.

In order to sell its part of the sprawling Eagle Ford Shale acreage, Chesapeake Energy Corp. on January 18 concluded an agreement to trade its Brazos Valley region assets to WildFire Energy I LLC for $1.425 billion.

On January 6, Phillips 66 announced that it plans to acquire more than 43% of DCP Midstream LP for $3.8 billion, expanding the business in the oil & gas business.

On January 5 Northern Oil & Gas (NOG) concluded a deal to acquire working interests in Midland-Petro D.C. Partners LLC (MPDC)'s Mascot Project in the Midland Basin, according to a January 9 press release. Firstly estimated at $330 million in cash, the deal was signed with an additional 3.25% working interest added to the 36.7% agreed upon when the transaction was announced on October 19. NOG paid $29 million more for the additional interests, which now totalled 39.958%. Finally, the deal closed for $320 million in cash and $43 million in debt at signing in October with the finance of Minnetonka, Minn.-based NOG with cash on hand, operating free cash flow, and assistance from its revolving credit facility.

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