Paramount Falls Most in Two Months After Gas Plant Sale

  • Deal includes take-or-pay volume commitment from Paramount
  • Paramount to use $427 million proceeds to pay down bank line

Paramount Resources Ltd. fell the most in two months after announcing a deal to sell a natural gas processing facility and pipelines to Pembina Pipeline Corp. for C$556 million ($427 million), a lower price than some investors had expected.

Paramount, a Calgary-based gas producer, dropped 15 percent to C$8.14 at 1:03 p.m. in Toronto after falling as much as 17 percent, the most intraday since Jan. 20. Pembina, an operator of pipelines and processing plants also based in Calgary, is buying the Musreau complex, which includes a sour gas processing plant and associated pipelines and disposal wells, the companies said Thursday. The price is somewhat lower than forecast by Adam Gill, a Calgary-based analyst at CIBC World Markets.

“We held the belief the transactions would be in a $650 MM-$800 MM range, so a bit light to expectations but not far off,” Gill wrote in a note on Friday. While the sale cleans up Paramount’s balance sheet and lets the producer focus on drilling wells, any improvement in the company’s situation was already reflected in its stock, he said.

The deal is a testament to continued interest by energy companies in acquiring so-called midstream assets, the pipelines and plants that gather, process and deliver oil and gas to markets. These networks have proven more resilient amid the collapse in oil prices than energy drillers because their revenues are typically backed by long-term contracts.

Paramount will use the proceeds to pay down its bank line, and has agreed to a 20-year service contract to use the facilities, including a take-or-pay commitment. Pembina will boost its monthly dividend 4.9 percent to 16 cents a share thanks to the deal.

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