Whitecap Resources and Veren combine in a $15 billion all stock deal: The Saskatchewan perspective

For Saskatchewan, the deal is in some ways “getting the band back together”

 

WHITECAP RESOURCES AND VEREN TO COMBINE IN A $15 BILLION TRANSACTION TO CREATE A LEADING CANADIAN LIGHT OIL AND CONDENSATE PRODUCER

CALGARY, ALBERTA – A blockbuster merger was announced the morning of Monday, March 10, with Whitecap Resources Inc. (TSX: WCP) and Veren Inc. (TSX: VRN) (NYSE: VRN) announcing a $15 billion all-stock deal.

The companies’ joint press release said the strategic combination would create a “leading light oil and condensate producer with concentrated assets in the Alberta Montney and Duvernay. The combined company will be the largest Alberta Montney and Duvernay landholder, a prominent light oil producer in Saskatchewan and will leverage the combined asset base and technical expertise to drive improved profitability and superior returns to shareholders.”

The companies have entered into a definitive business combination agreement to combine in an all-share transaction valued at approximately $15 billion, inclusive of net debt. Under the terms of the agreement, Veren shareholders will receive 1.05 common shares of Whitecap for each Veren common share held. The combined company will be led by Whitecap’s existing management team under the Whitecap name with four Veren directors to join the Whitecap Board of Directors, including the current president & CEO of Veren, Craig Bryksa. The transaction is expected to close before May 30, 2025.

Indeed, “Veren” didn’t last very long under that name, with Crescent Point Energy Corp. announcing its name change on March. 20, 2024. The new stickers on the lease signs haven’t even had time to fade before this merger will make them obsolete.

In many ways, in Saskatchewan it’s a case of getting the band back together. Veren, formerly Crescent Point Energy Corp., has been on a years-long trend since 2018 of selling off Saskatchewan assets that it built up since around 2007. That build-up, which included around 30 acquisitions, mostly in Saskatchewan, had solidified its dominant position in both southeast and southwest Saskatchewan, with additional operations in west central Saskatchewan, Alberta, North Dakota and Utah. But the change in leadership at then-Crescent Point, from Scott Saxberg to Craig Bryksa in 2018, saw a reversal in the company’s strategy, from growth in Saskatchewan assets to selling off most of them as it focused on reducing debt incurred in the previous buildup. A year ago, it sold off its Flat Lake and Battrum plays to Saturn Oil & Gas. Just the Viewfield Bakken and Shaunavon play remained in Veren’s Saskatchewan portfolio, a dramatic reduction from seven years prior.

Many of the portions of Crescent Point’s once dominant position that were sold off went to Whitecap, especially in the Lampman/Browning area.

Essentially, as Crescent Point gave up its former role as the serial acquirer in southern Saskatchewan, Whitecap has picked up that very role.

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The merged company will operate under a CEO whose Saskatchewan roots run deep, as he originally hails from Estevan. Grant Fagerheim, Whitecap’s president & CEO, stated in the release: “We are excited to bring together two exceptionally strong asset bases to create one world-class energy producer with one of the deepest inventory growth sets of both liquids-rich Montney and Duvernay opportunities, along with conventional light oil opportunities in some of the most profitable plays in the Western Canadian basin. Our combined company will include exceptional technical and support personnel from the two companies in both the office and field and an experienced Board of Directors that prioritizes sustainable and profitable growth to generate strong returns for our combined shareholders. We look forward to bringing Whitecap and Veren together and providing increased value to both sets of shareholders well into the future.”

 

Fagerheim was named the 2022 Saskatchewan Oil Person of the Year at the Saskatchewan Oil and Gas Show.

Craig Bryksa, Veren’s president & CEO, stated, “This strategic combination unlocks significant value for all shareholders and together positions us as a stronger, more resilient company. With enhanced scale, deep inventory, and increased free funds flow generation, we’re building a business with a differentiated competitive advantage. Our combined balance sheet reinforces our financial strength and enhanced credit profile, ensuring the long-term success in an evolving market. Together we’re unlocking synergies, creating new opportunities, and setting the stage for sustainable growth.”

Chris Bullin, vice president, East Division (essentially Saskatchewan), said during the March 10 webcast, “The conventional division becomes an extremely robust entity that brings together over 150,000 boe a day of high net back 81% liquid-weighted light oil focused volumes to drive corporate free cash flow generation.

“The combination of Whitecap and Veren lands in Saskatchewan provides an ideal opportunity, as these lands each other exceptionally well, which has further solidified our position as the premier conventional producer in Saskatchewan, with the largest producing volumes per day, when excluding heavy oil thermal operation. We continue to be the most active conventional driller in Saskatchewan, and now, with our combined activities are even more significant, with approximately 200 wells planned to be drilled in Saskatchewan for 2025.

“These sustainability driven assets are further enhanced in aggregate as overall base declines are reduced to less than 20%, bolstered by the increased weighting and EOR volumes from both the Veren’s dominant positions in the Viewfield Bakken in eastern Saskatchewan and the Shaunavon in southwest Saskatchewan, with approximately 60,000 boe per day under secondary or tertiary recovery within the division, 80% of which resides in Saskatchewan. Whitecap is the dominant EOR producer in Saskatchewan.

“The overlay with the existing Whitecap lands provides an optimal opportunity to realize the benefits of the combination. Conventional synergies are expected to drive drill, complete equipment tie-in savings of approximately $25 million on an annual basis. This primarily comes from program rephasing and savings related to size and scale.

“From an inventory perspective, the conventional division has strengthened with this high confidence and repeatable portfolio that now increases to approximately 7,000 locations strong, including over 2,600 premium locations to support over 15 years of running room. Our conventional division is the foundation for free cash flow generation, and the team continues to find opportunities to enhance our already robust inventory duration, when combined with the unconventional division, this complimentary asset portfolio is able to deliver both sustainable cash returns and long-term growth for our shareholders.”

 

Notably, there was something distinctly different about this announcement. Historically, Crescent Point/Veren would stop drilling in an area before an impending sale. But as of March 10, both Veren and Whitecap had rigs working in the field.

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Here’s what the press release said about the merger:

Strategic Rationale

• Solidified Position Within the Large-Cap Universe:The combined company will have an enterprise value of $15 billion¹ and 370,000 boe/d (63% liquids) of corporate production with significant overlap across both unconventional and conventional assets. The combined company becomes the largest Canadian light oil focused producer and the seventh largest producer in the Western Canadian Sedimentary Basin, with significant natural gas growth potential.
• Significant Size and Scale across the High Impact Montney and Duvernay:The combined company becomes the largest producer in the high margin Kaybob Duvernay and Alberta Montney with approximately 220,000 boe/d of unconventional production. The combined company becomes the largest landholder in the Alberta Montney and the second largest landholder across unconventional Montney and Duvernay fairways with 1.5 million acres in Alberta. The combined company boasts over 4,800 total development locations³ in the Montney and Duvernay to drive decades of future production growth.
• Leading Low Decline Light Oil Position in Saskatchewan: The combined company becomes the second largest producer in Saskatchewan with consolidated assets in west and southeast Saskatchewan. The combined business will have 40% of its conventional production under waterflood recovery supporting a decline rate of less than 20% on 150,000 boe/d of production. These foundational assets have approximately 7,000 development locations to support meaningful free funds flow generation into the future.
• Immediate Accretion: The combination is immediately accretive to Whitecap standalone funds flow per share¹(10%) and free funds flow per share¹ (26%), before incorporating any benefit from expected synergies, highlighting increasing sustainability and an enhanced financial outlook for the combined shareholders.
• Visible Long-Term Synergies:Visible operating, capital and corporate synergies which, in addition to supply chain efficiencies, can generate meaningful savings. Anticipated annual synergies of over $200 million can be achieved independent of commodity prices and will begin to be captured upon closing of the transaction.
• Strong Credit Profile:Exceptional balance sheet with initial leverage of 0.9 times Net Debt to Funds Flow¹ which is expected to continue to further strengthen to 0.8 times by year end 2026. Whitecap and Veren both have an investment grade credit rating of BBB (low), with a Stable trend, issued by DBRS, Inc. (“Morningstar DBRS”) and with the strength and increased scale of the combined company the credit profile is expected to improve, which has the potential to reduce the go-forward cost of debt and expand debt marketing opportunities.
• Pathway for Long-Term Growth and Value Creation:Reaching critical mass that is desirable in public markets increases the potential to expand the combined company’s shareholder base and achieve a greater market following. Pro forma scale, risk profile and increased market relevance is expected to drive multiple expansion to valuations that are more closely aligned with the large-cap peers. The combined company will continue to pay Whitecap’s annual dividend of $0.73 per share, representing a 67% increase in base dividend for Veren shareholders.
• Disciplined Leadership and Governance:The combined business will continue to be led by the Whitecap executive team, who have a long track record of operational excellence, financial discipline, strong safety performance and are focused on generating strong returns to shareholders. The Board of Directors will consist of eleven members, made up of seven directors from Whitecap and four directors from Veren.

 

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Financial Summary

The combined company’s production forecast at closing is 370,000 boe/d (63% liquids) and based on commodity prices of US$70/bbl WTI and C$2.00/GJ AECO, the forecast annualized funds flow is $3.8 billion¹. After annual capital investments of $2.6 billion⁴, free funds flow is forecast at $1.2 billion¹. Detailed 2025 guidance will be provided on close of the transaction.

Concurrent with entering into the Agreement, Whitecap has received commitments from National Bank of Canada (“NBC”) and the Toronto Dominion Bank (“TD”) with National Bank Financial Markets and TD Securities, as Joint Bookrunners and Co-Lead Arrangers, for a $500 million increase to the company’s existing committed $2.0 billion credit facilities as well as commitments for an additional fully committed $1.0 billion credit facility from NBC, TD, Bank of Montreal, and Bank of Nova Scotia as Joint Bookrunners. On a combined basis, these facilities provide for $3.5 billion in total credit capacity available to Whitecap on closing to support the combination.

Combination Structure Details

The companies have entered into the Agreement to combine in an all-share transaction valued at approximately $15 billion, inclusive of net debt. Under the terms of the Agreement, Veren shareholders will receive 1.05 common shares of Whitecap for each common share of Veren held. Following the close of the transaction, Whitecap shareholders will own approximately 48% and Veren shareholders will own approximately 52% of the total common shares outstanding of the combined company.

It is anticipated that normal course monthly dividend payments will continue to be made by Whitecap and that Veren’s first quarter dividend will be paid in the normal course, after which Veren will not pay dividends, provided that, in the event that the transaction closes after May 31, 2025, Veren shareholders will be entitled to a Special Dividend comprised of a monthly dividend declared by the Veren Board and paid by Veren in respect of the month of May and every calendar month thereafter in which the Effective Date does not occur, in the amount of $0.03833 per Veren share (being one-third of Veren’s current quarterly dividend per Veren share).

The transaction is structured through a plan of arrangement in respect of the securities of Veren under the Business Corporations Act (Alberta) and is subject to the approval of at least two-thirds of the votes cast by holders of Veren common shares. The issuance of Whitecap common shares pursuant to the arrangement is subject to the approval of the majority of votes cast by holders of Whitecap common shares in connection with the transaction. Closing of the transaction will be subject to approval of the arrangement by the Court of King’s Bench of Alberta as well as other customary closing conditions, including the receipt of customary regulatory and Toronto Stock Exchange approvals. The transaction is expected to close before May 30, 2025.

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An independent special committee of the Board of Directors of Veren was formed to consider and review the transaction on behalf of the Veren Board of Directors.  Based on, among other things, the unanimous recommendation of the Special Committee, the Board of Directors of Veren unanimously determined that the transaction and the entering into of the Agreement are in the best interests of Veren, the transaction is fair to the Veren shareholders and approved the Agreement, and has unanimously recommended that Veren shareholders vote in favor of the resolution to approve the transaction at the special meeting of Veren shareholders to be held on or about May 6, 2025.

The Board of Directors of Whitecap unanimously determined that the transaction and the entering into of the Agreement are in the best interests of Whitecap, the transaction is fair to the Whitecap shareholders and approved the Agreement, and has unanimously recommended that Whitecap shareholders vote in favour of the resolution to approve the issuance of Whitecap common shares pursuant to the transaction at the special meeting of Whitecap shareholders to be held on or about May 6, 2025.

A joint information circular, which will include details of the transaction, is expected to be mailed to Whitecap and Veren shareholders in mid-April 2025.

 

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