Crescent Point Energy (CPG.TO)(CPG) shares fell to their lowest levels since July on Tuesday as investors digested the company’s latest deal in Alberta’s Montney shale play.
Calgary-based Crescent Point announced a $2.55 billion cash-and-stock deal to buy Hammerhead Energy (HHRS.TO) after the close of financial markets on Monday, including about $455 million of Hammerhead’s net debt.
Under the terms, Hammerhead shareholders will receive $21 per fully diluted common share through a combination of about $1.5 billion in cash and 53.2 million common shares of Crescent Point. The companies expect the transaction to close in December.
Toronto-listed shares fell 8.46 per cent to $10.02 as at 11:35 am ET on Tuesday, after dropping as much as 10 per cent in early trading.
Crescent Point says the deal would create Canada’s seventh-largest energy producer by volume, adding 105,000 acres and 800 drilling locations in one of North America’s largest unconventional oil plays. The company says the assets would increase its drilling inventory to over 20 years.
“This transaction is expected to be immediately accretive to our per-share metrics and enhance our return of capital profile for shareholders,” Crescent Point CEO Craig Bryska stated in a news release on Monday. “Crescent Point will have a dominant position in both the Alberta Montney and Kaybob Duvernay plays.”
Earlier this year, Crescent Point purchased Spartan Delta’s Montney oilfield assets in a $1.7-billion deal, amid a wave of billion-dollar oilpatch M&A action in 2023.
Crescent Point plans to fund the cash portion of its latest deal through existing credit facilities, a new $750 million three-year term loan, and $500 million in gross proceeds from an equity offering.
Tudor, Pickering, Holt & Co. analyst Jeoffrey Lambujon says the deal’s valuation is in line with the Spartan Delta purchase. In a note to clients on Tuesday, he calculated that Crescent Point would pay a similar rate per flowing barrel of oil in both transactions.
“We like the additional scale the deal brings, even with CPG’s conservative underwriting on inventory,” Lambujon wrote.
“This is another sign of the attractiveness of the entire resource in the Montney,” RBN energy analyst Martin King told Reuters. “The best thing about the play is the finding cost, especially for natural gas, is very, very low.”
Crescent Point’s Toronto-listed shares are up 13.25 per cent year-to-date. If the deal closes, the company says it plans to increase its dividend by 15 per cent to $0.46 per share on an annual basis.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.