Pengrowth down 76% on acquisition news

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Pengrowth Energy Corp. [PGF-TSX; PGHEF-OTCQX] shares tumbled Friday November 1 after the company said it has agreed to be acquired by Cona Resources Ltd. in a deal worth $740 million.

Cona Resources is a portfolio company of private equity firm Waterous Energy Fund, and has agreed to pay $0.05 per share for Pengrowth, plus a potential contingent value payment.

The move comes after Pengrowth recently reported a loss of $76.5 million or 14 cents a share in the quarter ended June 30, 2019. At the close of the quarter, Pengrowth reported total debt of $702 million.

Investors reacted to the by sending Pengrowth shares down 76% or 15.2 cents to $0.047. Prior to the announcement, the shares had been trading in a 52-week range of 18 cents and 94 cents.

Nevada Capital Corp., a company controlled by billionaire resource financier Seymour Schulich, is Pengrowth’s largest shareholder with a 28.5% stake. Schulich also has a direct 1.79% stake in Pengrowth.

Pengrowth has been producing oil and gas in Western Canada for over 30 years. Its portfolio includes the Lindbergh thermal property, located in the Cold Lake area of east-central Alberta. The company is currently producing 18,000 barrels per day from the Lindbergh property and 24.6 million cubic feet per day from its Montney operations in northeast British Columbia.

“As a result of the significant decline in oil prices in 2014, which followed on the heels of the largest capital project in Pengrowth’s history at Lindbergh, the company took immediate steps to shore up the company’s balance sheet by selling assets and pay down $1.2 billion of debt,” said Pengrowth Chairman Karl Johnston.

“Further efforts were undertaken in 2018 to market an additional overriding royalty on the Lindbergh asset and to secure high yield debt to replace the current outstanding secured debt,” he said. “Both funding initiatives proved unsuccessful.”

Johnston went on to say that the extreme volatility in the price of Western Canadian oil in the fall of 2018, coupled with an uncertain political and regulatory environment, has led to a severe funding crisis in the Calgary energy capital markets which impeded the company’s ability to achieve a funding solution.

The sale announcement comes nearly eight months after Pengrowth launched a strategic review process and engaged Perella Weinberg Partners LP and Tudor, Pickering, Holt & Co. to explore the company’s strategic options and alternatives with a view to improving the company’s balance sheet, address upcoming debt maturities and maximize enterprise value.

It said the strategic review was intended to explore a comprehensive range of strategic and transaction alternatives, including a sale, merger or other business combination, in addition to other alternatives that might have improved the company’s financial position.

The company said at the time it was in talks with the lending syndicate in relation to its $330 million revolving bank credit facility in a bid to have the maturity date extended.

As one of the top 20 oil producers in Alberta, Pengrowth said it was subject to the Government of Alberta’s Curtailment Program which took effect on January 1, 2019.

On Friday Pengrowth President and CEO Pete Sametz said the company’s board of directors determined that the best available alternative for the company and its stakeholders is to pursue and support a consensual sale transaction that, in addition to repaying the secured debt, would also provide some measure of value for shareholders and other stakeholders.

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