Strategic Montney Combination

ARC Resources and Seven Generations Energy

On February 10, 2021, ARC Resources Ltd. ("ARC") and Seven Generations Energy Ltd. ("Seven Generations") announced a strategic combination of the two premier Montney producers. The combined company will continue to focus on delivering significant free funds flow(1) generation through a responsible and disciplined approach to development while creating superior and enduring value for all shareholders. The combination is consistent with ARC’s and Seven Generations’ long-term strategies and is expected to be immediately accretive on a free funds flow and net asset value per share basis to all shareholders.

The companies have entered into a definitive agreement to combine in an all-share transaction valued at approximately $8.1 billion, inclusive of net debt. The combined company will operate as ARC Resources Ltd. and remain headquartered in Calgary, Alberta. Under the terms of the definitive agreement, Seven Generations shareholders will receive 1.108 common shares of ARC for each common share of Seven Generations held.

Transaction Highlights

  • The combined company will become the premier Montney producer of low-cost natural gas and high-margin condensate, with combined production expected to total over 340,000 boe(2) per day in 2021, comprising approximately 138,000 barrels per day of liquids and approximately 1.2 Bcf per day of natural gas.(3)
  • The transaction will create a combined company with material size and scale that enhances ARC’s and Seven Generations’ existing commodity and geographic diversification. The combined company will become Canada’s largest condensate producer, third-largest natural gas producer, and sixth-largest upstream energy company.
  • The combination will immediately deliver accretive free funds flow per share to all shareholders, yielding synergies that are expected to deliver approximately $110 million in annual cost savings by 2022. The combined company will continue to pay ARC’s quarterly dividend of $0.06 per share, subject to the approval of the Board of Directors.
  • The combined company is expected to generate significant free funds flow at current commodity prices, which will increase optionality in capital allocation decisions, including the ability to fund development of ARC’s Attachie asset, further development of Seven Generations’ Nest asset, and deliver incremental returns to shareholders.
  • Following the combination, ARC will maintain its strong financial position, with financing for the transaction fully committed. The combined company is expected to have an investment-grade credit rating and plans to manage a low-cost capital structure with ample liquidity. The combination also has a strong deleveraging profile, with net debt expected to be reduced to approximately 1.3 times funds from operations by year-end 2021.
  • The combination will advance both companies’ operational excellence and elevate their standing as prominent ESG-focused companies, with ARC and Seven Generations currently delivering the lowest greenhouse gas emissions intensity amongst their Canadian exploration and production peer group.
  • The combined company will benefit from the experience of ARC’s Hal Kvisle as Board Chair and Seven Generations’ Marty Proctor as Board Vice-Chair, and will be led by ARC’s Terry Anderson as President and Chief Executive Officer and director, ARC’s Kris Bibby as Senior Vice President and Chief Financial Officer, and Seven Generations’ David Holt as Senior Vice President and Chief Operating Officer.
(1) Non-GAAP measure that does not have any standardized meaning under International Financial Reporting Standards and therefore may not be comparable to similar measures presented by other entities. Free funds flow is computed as funds from operations generated during the period less capital expenditures before undeveloped land purchases and property acquisitions and dispositions.
(2) ARC and Seven Generations have adopted the standard six thousand cubic feet ("Mcf") to one barrel ("bbl") of crude oil ratio when converting natural gas to barrels of oil equivalent ("boe"). Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value.
(3) Throughout this news release, crude oil ("crude oil") refers to light, medium, and heavy crude oil product types as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Condensate is a natural gas liquid as defined by NI 51-101. Throughout this news release, NGLs comprise all natural gas liquids as defined by NI 51-101 other than condensate, which is disclosed separately. Throughout this news release, crude oil and liquids ("crude oil and liquids") refers to crude oil, condensate, and NGLs.

Related Documents

ARC Resources and Seven Generations Energy Transaction Presentation

February 10, 2021 - ARC Resources and Seven Generations Energy Announce Strategic Montney Combination