International Petroleum Corp. (IPC) agreed to acquire Canadian oil and gas producer BlackPearl Resources Inc. in a strategic business combination, the companies said in a joint release on Oct. 10.

Under the merger agreement, IPC will acquire all shares of BlackPearl at a price of C$1.85 per share, which represents a premium of 42% to the closing price of BlackPearl shares on Oct. 9, according to the release.

BlackPearl Asset Map (Source: BlackPearl Resources Inc.)

Overall, the price tag for the deal is expected to total about C$622.5 million based on the roughly 336.5 million shares of BlackPearl outstanding as of a June company presentation.

BlackPearl, based in Calgary, Alberta, trades on the Toronto Stock Exchange under the symbol "PXX". The company’s primary focus is on heavy oil and oil sands projects in Western Canada.

IPC will acquire the Canadian asset base of BlackPearl to combine with IPC’s existing Canadian assets as well as its international assets in France, Malaysia and the Netherlands.

The acquisition is expected to double IPC’s daily net production, according to IPC CEO Mike Nicholson, who called the acquisition “transformational.”

“With the completion of this transformational acquisition, IPC will more than double its total proved plus probable [2P] reserves, with an increased oil weighting up from 42% to 74%,” Nicholson said in a statement. “Total 2P reserves and contingent resources of IPC increase close to six times. IPC’s 2P reserves life is increased by seven years and daily average net production is expected to increase by more than 50% in the years ahead compared to IPC today.”

IPC, whose shares also trade on the Toronto Stock Exchange, is the spin-off company based in Vancouver, British Columbia, for the non-Norwegian assets of Lundin Petroleum AB. The company completed its spin-off in April 2017.

Lukas H. Lundin, chairman of IPC and also a director on the Lundin Petroleum board, said the acquisition of BlackPearl follows IPC’s strategy to maximize the value of its asset base by using its financial strength to acquire strategic oil and gas assets.

“This is exactly the right time in the resource cycle to be pursuing this strategy,” Lundin said in a statement. “The acquisition by IPC of BlackPearl takes the resource base above one billion barrels and is another big step in delivering that strategy.”

BlackPearl's current core properties are:

  • Onion Lake, Saskatchewan: a conventional heavy oil property as well as a multi-phase thermal project. The first thermal phase was constructed and put on production in 2015. Construction on the second thermal phase was completed during first-quarter 2018 and put on production in second-quarter 2018;
  • Blackrod, Alberta: a bitumen property located in the Athabasca oil sands region of which the company is currently operating a pilot project using the steam-assisted-gravity-drainage (SAGD) recovery process. The company has received regulatory approval for our 80,000 barrels of oil equivalent per day commercial SAGD development application and the project is expected to be developed in phases; and
  • Mooney, Alberta: a conventional heavy oil property currently developed using both horizontal drilling and alkali-surfactant-polymer flooding, which is a chemical EOR technique.

The acquisition remains subject to shareholder approvals of both IPC and BlackPearl and certain regulatory approvals, with completion expected in December.

Following closing of the transaction, Chris Hogue, current vice president of operations of BlackPearl, will become the senior vice president of Canada for IPC. Ed Sobel will continue in his current role as vice president of exploration of BlackPearl for IPC. Hogue and Sobel will be based in Calgary.

In addition, John Festival, a director and the CEO of BlackPearl, will join the IPC board.

Paradigm Capital provided a fairness opinion to the IPC special committee on the transaction. Blake, Cassels & Graydon LLP is IPC’s Canadian legal adviser and Gernandt & Danielsson Advokatbyrå KB is the company’s Swedish legal adviser.

GMP FirstEnergy is financial adviser to BlackPearl and provided the BlackPearl special committee with a fairness opinion on the transaction. National Bank Financial and AltaCorp Capital are strategic advisers to BlackPearl and Bennett Jones LLP is the company’s legal adviser.