Calgary-based PetroBakken Energy Ltd. raised its bet on an Alberta light oil reservoir called Cardium by $480 million Thursday, announcing its second takeover deal in 24 days.
The company formed last August to go after opportunities in the Bakken tight oil play in southern Saskatchewan said it will buy Calgary junior Result Energy Inc. in a cash-and-shares deal.
On Jan. 4, it announced its entry into the Cardium by making a $336-million bid for junior Berens Energy Ltd.
For Brett Herman, president and chief executive of Result, it's the second time in five months that a company he's headed is being absorbed by PetroBakken.
He was the chief executive of TriStar Oil and Gas when it agreed to the $2-billion asset merger with Petrobank Energy Ltd. that created PetroBakken.
In November, Result announced a recapitalization and replaced its management team and board, bringing in Herman and his team.
"The Cardium is a play that is very analogous to the Bakken and we wanted to expand the position we had on the play, so that precipitated the Berens acquisition," said Gregg Smith, president and chief operating officer of PetroBakken.
"The acquisition of Result is a lot more land and there is a great fit between the two land positions in the West Pembina area."
Herman said in an interview his team's plan after TriStar was sold was to buy a shell company and assemble Cardium tight rock assets. The idea to sell to PetroBakken didn't form until the Berens deal was announced.
"The Cardium play has very similar characteristics to the Bakken play and, as I mentioned to one of the senior managers at PetroBakken, the early bird gets the worm here," Herman said.
"People were a little slow on the Bakken play, but they're definitely more educated on tight rock and hence why the Cardium play has heated up a lot quicker."
He said Result has been taking part in recent Alberta land sales, but declined to comment when asked if it had purchased land in Wednesday's $58.5-million drilling rights auction. The most expensive parcel was a licence on the Cardium trend near Drayton Valley that sold for $13.1 million, or $14,622 per hectare.
Herman said the PetroBakken deal gives shareholders access to capital, economies of scale and technical expertise to develop the play.
The Cardium is a reservoir in the Pembina formation that appears in zones from south of Edmonton to Cochrane and has been producing oil and gas for more than 50 years through vertical wells.
New horizontal well technology that uses multi-stage fracture stimulations is allowing companies to go back into the extensively mapped formation and recover resources previously considered uneconomic.
Smith said exploration in the play benefits enormously from the temporary Alberta government royalty incentives, but even without incentives it delivers good results at oil prices over $70 US per barrel.
Result had planned a $60-million 2010 capital expenditure program to include the drilling of 20 net Cardium light oil horizontal wells. It had hoped to grow production from the recent 700 barrels of oil equivalent per day (75 per cent gas) to exit 2010 at 2,250 boe per day (75 per cent light oil).
PetroBakken is offering 42 cents per share or 0.013 of a PetroBakken share for each Result share, with the maximum cash component of $200 million. The $480-million valuation includes $60 million in Result working capital.
Analyst Andrew Potter of UBS called the deal "pricey" in a note, but said it will add value to Petro-Bakken. The acquiring company's shares closed down $1.28, or four per cent, at $29.91. Result shares fell 1.5 cents to 40 cents.
Result is in the process of buying Cardium-rich junior Nexstar Energy Ltd., whose shareholders are to vote on Feb. 16.
After the acquisitions of Result and Berens, PetroBakken will have access to more than 225 (150 net) sections of Cardium land and over 400 net drilling locations, it said.