Vermilion to Buy Deep Basin Player Westbrick for $746 Million
Vermilion Energy Inc. has signed a deal to take over Westbrick Energy Ltd., which owns producing and non-producing assets in Canada’s Deep Basin, via a CAD 1.075 billion ($746.04 million) stock purchase.
Westbrick shareholders including holders of securities convertible to shares will receive up to 1.7 million common shares of Vermilion with up to CAD 25 million in value. The reference will be Vermilion’s five-day volume weighted average price on the Toronto Stock Exchange immediately before the signing of the agreement, oil and gas exploration and production firm Vermilion said in a statement.
Subject to shareholder, court and regulatory approvals, the transaction is expected to close in the first quarter of 2025.
The Westbrick assets can contribute 50,000 barrels of oil equivalent a day, of which 75 percent is gas and 25 percent liquids, to Vermilion’s production next year, according to the statement on Vermilion’s website.
“This production level represents five percent year-over-year growth and is forecast to generate more than [CA]$110 million of annual free cash flow based on forward commodity prices”, Calgary-based Vermilion added. “Revenue from the acquired assets will be derived approximately 50 percent from liquids and 50 percent from gas.
“In conjunction with the Acquisition, Vermilion plans to actively and opportunistically hedge gas production to mitigate financial risk”.
The acquisition will give Vermilion 1.1 million acres of land and four operated gas plants with a collective capacity of 102 million cubic feet per day (MMcfd) in the southeast of the Deep Basin trend in Alberta province. “This footprint is contiguous and complementary to Vermilion’s legacy Deep Basin assets providing significant operational and financial synergies, including: capital efficiency improvements, infrastructure optimization, gas marketing opportunities, and other corporate synergies”, Vermilion said.
The “significant, high-quality drilling inventory adds over 700 locations in the Ellerslie, Notikewin, Rock Creek, Falher, Cardium, Wilrich and Niton formations, with half-cycle IRRs [internal rate of returns] ranging from 40 percent to over 100 percent based on estimates provided by McDaniel & Associates Consultants Ltd and using three consultant average October 1, 2024 pricing assumptions”, Vermilion added
The acquisition excludes undeveloped rights in the Duvernay play spanning 300,000 (290,000 net) acres, which will be retained by Westbrick investors.
The acquisition will bring proven developed producing (PDP) reserves of about 92 million barrels of oil equivalent (MMboe) and proven plus probable reserves of 256 MMboe, based on estimates by McDaniel & Associates Consultants Ltd. The estimates cover around 30 percent of the over 700 identified drilling locations, according to Vermilion.
“The acquisition price per boe of PDP reserves is $11.70, which translates to an implied recycle ratio of 1.3 times based on 2025 forecasted operating netbacks and 1.5 times based on 2026 forecasted operating netbacks”, Vermilion said.
“Vermilion’s Canadian liquids-rich gas assets, combined with over 100 mmcf/d of high-netback, low-decline European natural gas production provides the Company with a premium realized natural gas price”, it said.
“Vermilion is committed to strategically growing its international assets both organically, as demonstrated by recent successes in Germany and Croatia, and via acquisitions.
“In the near term, the Company will focus on operational execution, debt reduction, return of capital, and further high-grading of assets within its portfolio, including non-core asset sales, to enhance long-term shareholder value”.
Dion Hatcher, president and chief executive of Vermilion, said, “The strategic acquisition of Westbrick represents a significant step forward in Vermilion’s North American high-grading initiative to increase operational scale and enhance full-cycle margins in the liquids-rich Deep Basin”.
“The Deep Basin is an area Vermilion has been operating in for nearly three decades and is currently the largest producing asset in the Company”, Hatcher added.
Vermilion plans to fund the transaction using an undrawn CAD 1.35 billion revolving credit facility.
“In connection with the Acquisition, Vermilion has also entered into a new fully underwritten [CA]$250 million term loan maturing May 2028 through a debt commitment letter with TD Securities Inc. (acting as underwriter) and a new fully underwritten US$300 million bridge facility through a debt commitment letter with Royal Bank of Canada and TD Securities Inc.”, it added.
“Upon Closing, Vermilion is expected to have net debt of [CA]$2.0 billion with a pro forma year-end 2025 net debt to fund flows from operations ratio of 1.5 times and liquidity of approximately [CA]$500 million”.
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