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Decades of free inventory from one deal: Vermilion Energy buys Leucrotta Exploration for $477 million04/07/2022
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
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