Page 9 - NorthAmOil Week 46

NorthAmOil INVESTMENT NorthAmOil
Callon reduces offer for Carrizo, resulting in new support
US
Callon will lose its status as a pure-play Permian producer through the acquisition of Carrizo.
CALLON Petroleum announced last week that it had amended the terms of its agreement to acquire Carrizo Oil & Gas in an all-stock trans- action. As a result of these amendments, parties that had previously opposed the merger have now come out in support of it.
Under the amended deal, Callon will now acquire Carrizo for around $723mn, whereas it was previously offering $1.2bn under the orig- inal agreement that was struck in July. Carrizo shareholders will now receive 1.75 Callon shares for each share held, down about 15% from the first agreement.
Callonhasagreedtopayupto$10mnofCar- rizo’s expenses if the former’s shareholders reject the deal. Under the amended agreement, the termination fee could be adjusted to $20mn in certain circumstances.
However, the amendments appear to have encouraged some parties to drop their opposi- tion to the deal. Paulson & Co., a Callon share- holder, said this week that it would no longer oppose the transaction. The hedge fund’s previ- ous opposition to the deal was on the grounds that it was too expensive. Paulson reduced its stake in Callon earlier this month and now owns
a 4.5% interest in the company, down from 9.5% as of November 6, according to a regulatory filing.
Paulson remains critical of the deal, which would lose Callon its status as a pure-play Per- mian Basin producer by acquiring Carrizo’s Eagle Ford holdings, but now says it respects other shareholders’ views.
“The combined structure represents the most logical go-forward course of action for each company, given current Eagle Ford free cash flow and future potential to monetise the asset, as well as the increased size in the Delaware allowing for amoremeaningfulshifttoprojectdevelopment,” SunTrust Robinson Humphrey analysts wrote in a note.
Separately, on November 20 proxy advi- sory firm Institutional Shareholder Services (ISS) recommended that Callon shareholders vote in favour of the acquisition, having pre- viously urged them to vote against the original deal.
The transaction is due to close later this quar- ter, pending approval from the shareholders of both companies in December and other custom- ary conditions.™
PROJECTS & COMPANIES
Encana shareholder to vote against relocation
NORTH AMERICA
Encana would continue treating Canada’s Montney play as a core focus area after its relocation to the US.
LETKO, Brosseau & Associates, a shareholder in Encana, said on November 19 that it would vote against the Calgary-based company’s proposed relocation of its corporate domicile from Can- ada to the US. The investment firm, which owns nearly 4% of Encana, claimed that the move would cause significant losses for Canadian investors. Encana has rejected this claim, saying it was “disappointed” with Letko’s move.
Letko’s opposition to the relocation comes amid concerns that some Canadian funds would be unable to invest in Encana once it moves its headquarters to the US.
The planned relocation is part of a broader reorientation for Encana, which is also rebrand- ing as Ovintiv in 2020. The company has already been sharpening its focus on its US operations, boosting them through its acquisition of Tex- as-based Newfield Exploration for $5.5bn earlier this year. However, Western Canada’s Montney shale play will remain one of the company’s main areas of focus following the relocation. The other core areas – the Permian and Anadarko basins – are located in the US.
“A domicile in the United States will expose our company to increasingly larger pools of investment in US index funds and passively managed accounts, as well as better align us with our US peers,” Encana’s CEO, Doug Sut- tles, said when the move was first announced in late October. “The change in corporate dom- icile will not change how we run our day-to-day activities.”
Earlier this month, Encana said it had picked Denver, Colorado to be the location for its new head office. Denver is already the head office for Encana’s US operations.
The move suggests that Canada’s energy industry is beginning to fall out of favour even with domestic companies, in the wake of an exo- dus of foreign firms in recent years. Indeed, one of Encana’s founders, Gwyn Morgan, has said the company’s move and name change are signs that Canada’s energy industry has gone from being viewed as “positive to pariah”.
Encana’s new name and location of its cor- porate headquarters will be put to a shareholder vote in early 2020.™
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