Vermilion Scouts for Deals Ahead of Irish Cash WindfallRebecca Penty
Vermilion Energy Inc., a Canadian oil and natural gas producer expanding on three continents, is considering more deals as it’s set to be flush with cash from a gas project in Ireland.
The producer, which made four of its last five purchases in Europe, expects assets in Alberta and Saskatchewan to be the most probable targets of deals, Anthony Marino, Vermilion’s president and chief operating officer, said in an interview. While looking at possible purchases from Australia to Europe, Marino expects the North American deals market to be the most active amid a surge in potential offerings.
“It does look to me like it is a better market for buyers today in North America,” than in the past, Marino, 54, said at the Calgary-based company’s office Aug. 27. “It probably gives us a little bit of a better chance of making a deal -- with the very disciplined approach that we take to it -- than we have historically.”
Vermilion, the largest oil producer in France, expects its 19 percent stake in Royal Dutch Shell Plc’s Corrib gas project offshore Ireland will boost annualized free cash flow by C$3 per share when it starts in mid-2015, Marino said.
The company’s moves this year into Germany’s natural gas market and into a light-oil development in Saskatchewan will also help. Its C$8.67 projected per-share cash flow in the next 12 months will be the largest after Canadian Natural Resources Ltd.’s among Canadian producers worth more than C$2 billion ($1.8 billion), according to analysts’ estimates compiled by Bloomberg.
The shares have gained 25 percent over the past year in Toronto, to C$70.16 at yesterday’s close, in line with the 26 percent increase in the Standard & Poor’s/TSX Energy Index.
With the extra cash from Corrib, Vermilion also may boost its dividend, expand investment in existing properties and reduce debt, Marino said. The company typically makes acquisitions that are small relative to its market value of about C$7.5 billion, he said.
The company’s largest deal was the C$385 million purchase of Elkhorn Resources Inc. in April to create a new operating area in a light-oil region of southeastern Saskatchewan.
Vermilion will probably make similar-sized purchases of oil properties nearby with the cash from Corrib, said Kyle Preston, an analyst at National Bank Financial in Calgary who rates the company the equivalent of a buy.
“I think the cash is going to be used for a combination of dividend increase, probably some expanded capital programs in Alberta in particular and southeast Saskatchewan and probably complimenting it with some additional small tuck-in acquisitions,” Preston said.
Vermilion, which has 12 buy, nine hold and one sell recommendation from analysts, got about 72 percent of its revenues from operations outside Canada last year.