Paramount Resources Said to Explore Midstream Asset Options

  • RBC said to be soliciting interest for sale or joint venture
  • Apollo's CSV Midstream, Canada Pension venture could be buyers

Paramount Resources Ltd., the Canadian natural gas producer run by billionaire Clay Riddell, is exploring options for its midstream assets including a possible sale, according to people familiar with the process.

The Calgary-based company is working with Royal Bank of Canada on possible sales or partnerships for facilities that include gas processing plants, said the people, who asked not to be identified because the information is confidential. First-round bids have been submitted, they said.

Potential bidders could include the new midstream venture between Canada Pension Plan Investment Board and Wolf Infrastructure Inc., as well as Apollo Global Management LLC’s CSV Midstream Solutions Corp. Publicly-traded companies such as Calgary peers Pembina Pipeline Corp. and Veresen Inc. may also show interest, the people said.

Paramount is one of many energy companies considering asset sales as the crash in global oil prices extends more than 17 months. The price of U.S. crude dropped to the lowest in more than six years, settling at $37.65 a barrel on Monday. Shares of Paramount fell 22 percent to C$5.90, the biggest daily drop since 1987, according to data compiled by Bloomberg.

Paramount will need to do a midstream deal to fund production growth, according to Raymond James Ltd. Others to sell such assets in the past year include Encana Corp. and Bakken shale billionaire Harold Hamm. 

Dependable Revenue

Midstream assets including processing plants and pipelines have retained their value because revenues are typically dependable, as they are backed by long-term contracts. Paramount has built facilities to extract liquids such as propane and butane from its gas production in British Columbia’s Montney shale area.

“The company’s struggles to ramp up production to expected levels have only heightened the likelihood of some kind of transaction around its midstream assets to provide the liquidity needed to drive the next leg of growth for the business,” Kurt Molnar, an analyst at Raymond James in Calgary, wrote last month in a note.

Representatives for RBC, Canada Pension and Wolf declined to comment. Officials at CSV Midstream weren’t immediately available for comment. Representatives for Paramount and Veresen didn’t respond to requests for comment. Jason Fydirchuk, a spokesman for Pembina, said in an e-mailed statement the company is “currently not working with Paramount.”

Debt is poised to rise to 18 times cash flow this year for Paramount, said Molnar, who downgraded the stock from a “strong buy” to an “outperform.” The company has C$1.83 billion ($1.35 billion) of net debt, according to its third-quarter earnings results. The stock, which has five buy and 11 hold recommendations from analysts, has dropped 80 percent this year.

Riddell, Paramount’s executive chairman, controls 37 percent of the company’s shares, according to data compiled by Bloomberg. His son, Jim Riddell, is the president and chief executive officer.

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