Whitecap ResourcesInc. and TORC Oiland Gas Ltd. announced a business combination of two strong energy franchises resulting in a well-capitalized, low decline, light oil weighted company with an attractive free funds flow profile.
Whitecap and TORC have entered into a business combination under which the companies have agreed to combine their businesses in an at market, all-stock transaction valued at approximately $900 million, including TORC’s net debt, estimated at $335 million as of December 31, 2020.
Under the terms of the Agreement, shareholders of TORC will receive 0.57 Whitecap common shares in exchange for each TORC common share held. The at market exchange ratio was determined using ten-day volume weighted average share prices of the Whitecap Shares and the TORC Shares on the Toronto Stock Exchange prior to the signing of the agreement.
The combined entity will be stewarded by the existing Whitecap executive team and will continue to advance a total return model combining modest production growth with meaningful cash dividends. The Business Combination has been unanimously approved by the Boards of Directors of both Whitecap and TORC and is expected to close on or before February 25, 2021, subject to customary conditions, including the receipt of necessary regulatory and shareholder approvals.
Strategic and Financial Benefits of the Business Combination
• Material Size and Scale.The agreement significantly increases Whitecap’s scale and core area dominance as TORC’s asset base fits directly into Whitecap’s current core areas, creating one of the largest pure play conventional light oil producers in Canada with over 100,000 boe/d (78 per cent oil and NGLs) of corporate production. The combined entity will have an enterprise value of approximately $4 billion and has paid $1.4 billion in cumulative dividends to shareholders since inception.
• Improved Free Funds Flow Profile.TORC’s current production is approximately 25,000 boe/d and its production in 2021 is expected to average 22,000 boe/d due to a moderated capital program resulting in a production decline rate of less than 19 per cent.
• Significant Synergies. Tangible cost savings and inventory optimization opportunities are expected to result in incremental free funds flow of approximately $15 million in year one from corporate and operational synergies in the near term.
• Sustainable Development. Whitecap remains committed to best-in-class environment, social and governance practices and continuously improving its ESG profile. Whitecap is the operator of the Weyburn Unit, one of the largest carbon capture and utilization storage projects in the world, currently sequestering more than two million tonnes of CO2 annually and providing the company with its net negative emitter status.
Disciplined Leadership and Governance. The combined business will continue to be led by the Whitecap executive team and Board of Directors. Pursuant to the agreement and subject to receipt of approval by the shareholders of Whitecap of the resolution to amend the articles of Whitecap at the Whitecap meeting, Whitecap has agreed to appoint a designated director from TORC to its Board of Directors on closing.
Market Leading Light Oil Player
The strategic business combination of Whitecap and TORC creates a leading oil weighted producer in Western Canada with a focused asset base exhibiting lower production declines, high operating netbacks and strong capital efficiencies.
Grant Fagerheim, Whitecap’s President and CEO, stated: “We are combining two strong Canadian energy producers to form a leading large-cap, light oil company geared towards generating sustainable long-term returns for shareholders while prioritizing responsible Canadian energy development. Despite the challenging conditions and significant volatility throughout the year, we have become an even stronger and more resilient energy producer entering 2021 with the combination with TORC as well as the NAL transaction announced on Aug. 31, 2020. We would like to thank our employees for their continued exemplary efforts and our shareholders for their ongoing support. We look forward to advancing returns to our shareholders into the future.”
There is significant overlap in Whitecap’s and TORC’s asset bases providing for meaningful operational synergies and inventory optimization opportunities. The combined business will have 67 per cent of its production under waterflood recovery, supporting its industry leading base production decline rate of 17 per cent.
Brett Herman, TORC’s President & CEO, stated, “On behalf of TORC’s management and Board of Directors, we would like to thank our shareholders for their ongoing support over the past 10 years. We believe our corporate values are closely aligned with Whitecap’s management team and the announced business combination will create an exceptionally resilient energy producer that is positioned for growth, while delivering a sustainable dividend to shareholders. In a market environment that is increasingly favouring size and scale, a business combination with Whitecap exposes TORC shareholders to a larger platform while remaining consistent with our existing philosophy of balancing growth with financial discipline along with prudent capital allocation. We are pleased to become shareholders of Whitecap.”
