1 Top TSX Energy Play to Consider Today

Here’s one merger in the Canadian energy sector I’d highly recommend investors keep their eye on right now.

| More on:
Oil pipes in an oil field

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canadian merger and acquisition (M&A) activity is getting serious right now.

In addition to other high-profile mega-cap mergers, smaller Canadian companies are merging at a relatively rapid pace. These mergers may fly under the radar in this environment, but some are equally intriguing.

One such deal I have my eye on right now is the Arc Resources (TSX:ARX) and Seven Generations Energy (TSX:VII) merger. Indeed, I think this is an interesting play to consider right now.

Shareholders approve the merger deal

Arc Resources and Seven Generations in February announced an all-stock, debt-inclusive, $8.1 billion merger. So, in a way, this deal isn’t that small at all. Indeed, this deal stands to create what will become Canada’s sixth-largest oil and gas company.

In more good news, recent reports showed that 96% of Arc shareholders and 99% of Seven Generations shareholders voted in favour of the deal.

Accordingly, there’s anticipation this deal will close soon. The deal would result in ownership of the combined entity being relatively split down the middle by both Arc and Seven Generations shareholders. The newly combined Arc Resources is set to be headquartered in Calgary.

What does this deal mean for investors?

The combined entity will focus on improving its fundamentals and create synergies following the deal. All mergers stipulate some sort of synergistic value creation. However, this deal’s details are intriguing.

Arc will focus on reducing debt levels to 1-1.5-times net debt to annualized funds from operations upon the deal closing. Additionally, Arc expects its cost savings to amount to $110 million per year as per the deal. It’s likely that the company will continue to pay a $0.06-per-share quarterly dividend to the investors.

With a strong foothold in the Montney oil-producing region, the firm will be looking to invest in a highly prospective Attachie area, driving long-term growth potential for shareholders.

The newly combined entity is expected to produce over 1.2 billion cubic feet of natural gas, 138,000 barrels of liquid-like condensate, and 340,000 barrels of oil per day. With exceptional ESG commitments and strategic foresight, I expect the combined management teams should continue developing strategies to maximize shareholder value.

Bottom line

Patient investors looking for capital appreciation will definitely benefit from Arc’s experience and diverse assets for years to come. Analysts are still adamant that this firm’s reserves are not valued at a fair price, and the near-term upside of its core development areas is de-risked.

Accordingly, this deal looks to be an intriguing one right now for energy investors. I expect to see shares repriced higher over the medium term, as the market assesses the combined entity’s growth potential in this higher oil price environment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

More on Energy Stocks

oil and natural gas
Energy Stocks

Better Buy: Suncor or Cenovus?

Suncor Energy Inc. (TSX:SU)(NYSE:SU) and Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) have soared in the year-over-year period.

Read more »

A stock price graph showing declines
Energy Stocks

2 Cheap Canadian Stocks That Likely Won’t Be on Sale For Much Longer

These two Canadian stocks are close to returning to all-time highs. Don’t miss your chance to take advantage of these…

Read more »

canadian energy oil
Energy Stocks

3 Rising Energy Stocks to Buy as Oil Hits 6-Month Low

Three rising energy stocks are strong buys today as their upward momentum is likely to continue due to the tight…

Read more »

Retirement plan
Dividend Stocks

4 Stocks That Could Turn $100,000 Into $500,000 by the Time You Retire

Companies such as Brookfield Asset Management have the potential to consistently beat the broader markets and deliver stellar returns to…

Read more »

energy industry
Energy Stocks

Vermilion Energy (TSX:VET) Stock Set to Soar Higher After a Solid Q2 Show

Should you buy VET stock?

Read more »

Gas pipelines
Energy Stocks

Unpopular Opinion: Oil Stocks Are Still Good

Oil prices are coming down, but oil stocks like Suncor Energy (TSX:SU)(NYSE:SU) are still good.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Energy Stocks

3 Top Commodity Stocks for Passive Dividend Income

Commodity stocks like Cameco Corp (TSX:CCO)(NYSE:CCJ) offer dividend income.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

2 Oil Stocks Under $11 With 90-110% Gains So Far This Year

Two small-cap oil stocks with enormous gains year to date are likely to deliver far superior returns in 2022 versus…

Read more »