Surge Energy Inc. said Sept. 6 that it agreed to acquire Mount Bastion Oil & Gas Corp. for $320 million in cash and stock.
Mount Bastion shareholders may choose between cash, Surge shares or a combination of both, with a limit of $145 million cash available and roughly 75.4 million shares.
The deal is 11% accretive to Surge's forecast 2019 adjusted funds flow per share and adds more than 600 million barrels of net internally estimated light original oil in place, concentrated reserves, production, land and operations. The addition of the assets increases Surge's operating netback per barrel of oil equivalent by 12% and is forecast to add over $85 million of net operating income in 2019, according to a Sept. 6 press release.
Surge expects to increase its dividend by 25% to 12.5 cents per share annually from 10 cents per share, while improving the all-in payout ratio from 89% to 87%. Any dividend increase will be subject to the approval of Surge's board of directors with consideration given to the business environment upon closing of the transaction.
The deal is expected to close in October, subject to approval of at least two-thirds of Mount Bastion shareholders and a simple majority of Surge shareholders.
All of the directors and officers of Mount Bastion as well as the company's largest shareholder, collectively holding about 70% of the company's outstanding shares, support the deal.
Macquarie Capital Markets Canada Ltd. is acting as exclusive financial advisor to Surge and McCarthy Tétrault LLP is acting as Surge's legal advisor. GMP FirstEnergy and BMO Capital Markets have been appointed strategic advisors to Surge.