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By Lars Paulsson, James Herron, and Robert Tuttle
Tamarack Valley Energy Ltd. agreed to buy Headwater Exploration Inc. for about C$3.2 billion ($2.3 billion) in an all-stock deal that will combine two of the largest crude producers in Canada’s fastest growing oil play.
Under the terms of the deal, Headwater investors will receive Tamarack stock on a one-for-one basis. Tamarack shareholders will own 66.5% of the combined entity, with Headwater investors holding the remainder. Tamarack will issue a total of 237.8 million common shares, according to a statement Tuesday.
The combined company will be led by Tamarack management and produce the equivalent of roughly 80,000 barrels of oil a day from wells in and around the Clearwater formation in north-central Alberta where overall output has surged almost 90% since 2017, according to the Alberta Energy Regulator.
Tamarack was the day’s second-best performing Canadian energy stock after rising as much as 5.6% in Toronto. Headwater dipped as much as 3%.
Canadian oil producers have been looking to consolidate as the industry prepares for the possibility of new pipeline expansions and higher capital spending, giving a shrinking group of companies increasingly dominant positions in the region.
The combination of Tamarack and Headwater marks the biggest combination yet in the Clearwater region. The formation yields dense, high-sulfur crude similar to that found in the oil sands but at lower cost because companies can use conventional drilling techniques. Provincial regulators have issued hundreds of drilling licenses this year for the Clearwater formation.
Read More: Canada Unleashes Wave of Oil Drilling Permits in Next Big Play
Steve Buytels, president of Tamarack, will run the combined company as chief executive officer and join the board of directors, according to the statement. Tamarack CEO Brian Schmidt will transition to executive chairman.
The transaction follows Tamarack’s takeover of ARC Financial Corp.’s Deltastream Energy Corp. for C$1.43 billion four years ago. More such deals are on the horizon, Schmidt said in a June interview.
In connection with the latest deal, Tamarack plans to increase its quarterly dividend by 20% to C$0.06 per share starting in December, according to the statement. National Bank of Canada Capital Markets is acting as exclusive financial adviser to Tamarack, while Peters & Co. is working with Headwater. The deal is expected to close midway through the fourth quarter, according to the statement.
(Adds Clearwater formation detail in third paragraph, share price moves in fourth paragraph. A previous version of this story corrected the transaction value.)
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