In an Oct. 31, 2018, research note, analyst Tom Erik Kristiansen with Pareto Securities reported that Blackbird Energy Inc. (BBI:TSX.V) agreed to merge with privately held Pipestone Oil Corp. in "what we see as a highly value accretive deal for Blackbird's shareholders."
Kristiansen described the entity that will result from combining the two existing corporations: Pipestone Energy. One, it will own 153 net sections of continuous land in the Montney Shale play. The 39 net sections currently owned by Pipestone Oil are of equal quality to Blackbird's but are further derisked. "Our analysis indicates a fair relative pricing of the companies' land positions," he noted.
Two, the combined company will be fully financed, Kristiansen highlighted, which will benefit production. Already, Pipestone Energy raised CA$111 million of new equity at CA$0.34 per share, the price reflecting a 6% premium to the price at the close on Oct. 30, 2018, and secured loan commitments of about CA$200 million.
With the balance sheet to support it, Pipestone Energy could boost production to 14–16 thousand barrels of oil equivalent per day (14–16 Mboe/day) by year-end 2019, Kristiansen asserted. In fact, Pipestone Energy guides to roughly doubling that, producing more than 30 Mboe/day, by year-end 2022. This suggests "significant further growth potential thereafter (we estimate a long-term potential in excess of 100 Mboe/day)," he added.
"We believe the main value driver of the transaction is the transformation of Blackbird from holding an attractive but yet to be financed development portfolio to rapidly becoming a significant producer," the analyst relayed. "We also expect significant development synergies as the land portfolios now are combined."
As Pipestone Energy evolves, Kristiansen indicated, its share price could "more than double" in light of the value of some of its peers.
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