The deal with Paramount includes 155 net sections of land and about 30,000 boe/d of production. Seven Generations’ second quarter 2016 production is estimated at more than 115,000 boe/d, which puts the company on track to surpass its original 2016 production guidance of 100,000 to 110,000 boe/d.
“[This] counter-cyclical acquisition is a natural consolidation of our high-growth Nest resource play, where our highest value Nest 2 acreage will increase by more than 40 percent, from 101 to 144 section,” said President & COO Marty Proctor at the the time of the deal. Adding, “upon deal completion, we will have assembled more than half a million net acres of concentrated Montney lands – one of North America’s most prolific resource plays.”
What’s more, the company believes the acquisition will prove to be a boon to overall corporate earnings relatively soon. “We expect it to be accretive within the first year of ownership on a cash flow, production and reserves per share basis,” said Chris Law, Chief Financial Officer. “We expect the net debt to cash flow ratio to be approximately neutral at the end of 2016 and we expect to have sufficient cash and funds from operations to finance anticipated 2017 capital investments. Financial strength and prudent use of debt and equity continue to be at the core of 7G’s financial strategy.”
Aside from the company’s recent M & A activity, drilling activity has been declining over the past two years. Between September of 2014, and April of 2015, total wells drilled (all for natural gas) amounted to a staggering 73. Compared to the same period for 2015/2016, the total number of wells (again all for gas) has dropped by 41% to 47. What’s more, the summer of 2015 for Seven Generations saw a total of 28 wells drilled. It will be interesting to see the summer of 2016’s drilling figures for the company come this fall. However, given the recent elephant-gun sized deal with Paramount, drilling activity in the past year shouldn’t be cause for concern.
And if one were to look at how the company’s stock has performed in the past seven months, drill counts quickly becomes an afterthought. Since January of this year, the stock price has risen an impressive 96.11% from $13.89 to a current all time high of $27.24 per share.
Bloomberg reported that Seven Generations is one of a few select Canadian natural gas producers that are coming out ahead. In the article, Greg Dean, who oversees $2 billion at Toronto based Global Asset Management, mentioned “Tourmaline, Peyto [Exploration & Development], and Seven Generations, all have cash costs well below current commodity prices, they are winning a market share game.”
Going forward, management at Seven Generations appear to not be content focusing solely on producing natural gas. “We’re looking at the next big thing,” CEO Pat Carlson said in an interview. “Commitments to one or more projects could happen soon and startup could occur in three to seven years, and we think we need to be a provider of resources feeding a portfolio of opportunities. No matter where you are in North America, it’s [natural gas] oversupplied.”
The company is seeking options to ship its fuel off the Pacific Coast and to produce electricity and plastics. As Bloomberg reported, “moving into such capital-intensive projects would set Seven Generations apart from other domestic exploration and production companies, putting it alongside global heavyweights including Royal Dutch Shell Plc and Petroliam Nasional Bhd. that are proposing multibillion-dollar export terminals.” But it would also put it up against rivals in the power and petrochemical industries.
Yet despite the Seven Generations track record, ambitions like these have left some investors concerned.
“With good companies, you get apprehensive if they try to change their stripes,”said Rafi Tahmazian, a portfolio manager at Canoe Financial LP in Calgary. “In sailing, you don’t typically leave wind to find wind.”
However, CEO Pat Carlson said he will act in the interests of investors in whatever path the company takes and that he will find continued success, citing his achievements building Seven Generations and three other energy startups, North American Oil Sands Ltd., Krang Energy and Passage Energy.
Drilling activity trend data was gathered using the BOE Report Well Activity Map