AvenEx Energy Corp. (TSX:AVF), Pace Oil & Gas (TSX:PCE), and Charger Energy Corp. (TSX VENTURE:CHX) said they have agreed to merge to form a new dividend-paying corporation, called Spyglass Resources Corp.
Spyglass will have a balanced commodity profile, the companies said, underpinned by 18,000 boe/d of stable, low decline oil and gas production.
The merger will be completed on the basis of 1.30 Spyglass shares for each outstanding common share of Pace, 1.00 Spyglass share for each share of AvenEx and 0.18 Spyglass shares for each outstanding Class A share of Charger.
The exchange ratios represent a value of $4.32 for each Pace Share, $3.32 for each AvenEx Share and $0.60 for each Charger Share based on the closing price for AvenEx on Wednesday, they said.
At the same time, AvenEx has reached a deal to sell its Elbow River Marketing business for $80 million, subject to regulatory approvals. This sale is expected to wrap up by mid February.
Spyglass will be listed on the Toronto Stock Exchange, under the symbol "SGL", and will be managed by the current Charger team, led by Tom Buchanan as CEO, and Dan O'Byrne as president.
The board will consist of 8 members, with nominees from each party.
"We are very pleased to introduce a new dividend-paying intermediate oil and gas producer to the Canadian market," said Buchanan.
"The combined asset base features mature, low decline properties and a balanced commodity profile coupled with the light oil development opportunities needed to sustain the model. The management team has previously operated the majority of the assets that are being contributed to Spyglass and has a proven track record in respect of the execution, financial and operational discipline that is required to sustain a cash-distributing entity."
Once the deal closes, Spyglass will implement a monthly dividend of 3 cents per share, with a dividend payout of 35% to 40% of cash flow and a target all-in payout ratio of roughly 100% of cash flow.
The policy will be reviewed monthly and is based on a number of factors including current and future commodity prices, foreign exchange rates, an active commodity price hedging program, status of current operations and future investment opportunities.
The new company will have pro forma current production of 18,000 barrels of oil equivalent (boe) per day, 45 per cent weighted toward oil and liquids, with total proved reserves of 57.5 MMboe, and undeveloped land of 645,000 acres.
The merger is also expected to close in mid-February, subject to shareholder and regulatory approvals, among other conditions.
Pace shares rose 5% on the back of the news today, while AvenEx lost more than 13% and Charger jumped more than 41% to 48 cents.