03/23/2012 03:19 EDT | Updated 05/23/2012 05:12 EDT

Pengrowth to buy NAL Energy in stock swap; NAL stockholders get 9.7% premium

CALGARY - Pengrowth Energy Corp.'s $1.9-billion acquisition of NAL Energy Corp. will give the company the heft it needs to chase after growth opportunities in the oilsands and elsewhere, the CEO of oil and gas producer said Friday.

However, one analyst said it's a bad deal for Pengrowth (TSX:PGF) shareholders, and that he'd rather see the company sell assets than pile new ones onto its plate.

The combined company will have 100,000 oil-equivalent barrels of daily production and exposure to light oil assets in Alberta and Saskatchewan.

And CEO Derek Evans said it will also have improved access to capital to fund its Lindbergh steam-driven oilsands project in Alberta and chase other oilsands opportunities in the future.

"As a larger entity we'll be better positioned to support the Lindbergh development, which could be a key source of production growth," he said on a conference call to discuss the deal.

Evans added the deal provides a "very, very strong platform" from which the company will be able to chase more growth.

"The combined size of this organization, the stable nature of the production and the cash flow it's going to throw off is going to provide us with a greater ability to actually look at those opportunities," he said.

Pengrowth would look at oilsands projects in the relatively small 30,000 barrel-per-day range, as opposed to larger developments that are more at risk of cost overruns, Evans said.

Morningstar analyst Robert Bellinski said the NAL takeover "looks like a really bad deal for existing Pengrowth shareholders."

"I think that Pengrowth is a pretty mediocre producer with pretty mediocre assets to start with, and they've got too many of them," he said.

"They've got so much on their plate that I don't think they have the bandwidth to operate all of them efficiently. To add all these assets to that, I think doesn't help the situation."

Bellinski said NAL (TSX:NAE) doesn't seem to have a great growth profile, so essentially all Pengrowth is doing is buying its existing cash flow.

"The right thing to do instead of acquiring other firms would be the sell off properties, to focus their efforts on their best opportunities instead of trying to go out and find more," said Bellinski.

"If they had good opportunities in the first place, and they weren't paying such a high dividend, they'd have plenty of capital to start with, and plenty of opportunities to play that at a better return. I just don't buy their story at all."

Under terms of the transaction, NAL stockholders will receive 0.86 of a Pengrowth share for each NAL share they own. The deal values NAL at some $1.9 billion when debt is included.

Based on Thursday's closing prices of $9.95 for Pengrowth stock and $7.80 for NAL shares, the offer represents a premium of 9.7 per cent, the companies said in a joint release.

Based on the 20-day volume-weighted average prices on the TSX of Pengrowth and NAL, the exchange ratio represents a premium of 11 per cent.

Upon completion of the deal, the former NAL shareholders would own about 26 per cent of Pengrowth.

NAL CEO Andrew Wiswell said the company's assets are a good fit with Pengrowth.

"This transaction represents an opportunity for NAL shareholders to realize an immediate recognition of the value of the asset base, as well as the opportunity for continued participation with a larger and stronger entity," he said.

The deal requires the approval of at least two-thirds of NAL shareholders and a majority of Pengrowth shareholders at meetings being held in late May.

Pengrowth is an intermediate Canadian producer of oil and natural gas, headquartered in Calgary and focused on the development of conventional and unconventional resource plays in Western Canada.

NAL has crude oil, natural gas and natural gas liquids operations in southeastern Saskatchewan, central Alberta, and northeastern British Columbia.

Pengrowth shares fell 2.3 per cent to $9.72 in trading on the Toronto Stock Exchange Friday afternoon. NAL's were up nearly six per cent to $8.26.