Zodiac Exploration Inc.
, Stock Forum
) outlined its rationale Wednesday for the acquisition of private oil and gas company Muskwa Resources, saying the deal leaves it well positioned for any rebound in the junior resource sector.
“The purpose of this acquisition, essentially is not to move away from California, but to create a balanced portfolio and to compliment the California assets,’’ said Zodiac President and CEO Peter Haverson during a conference call with investors on Tuesday morning.
He was referring to the fact that the Muskwa deal adds 54,240 acres of land in central Alberta (primarily in the Duvernay and Nordegg formations), plus the pending addition of 24,000 net acres of exploration rights in Montana to Zodiac’s existing California portfolio.
"The key to any successful junior in our opinion is to have significant land and significant resource potential on those lands, and also to have cash,’’ said Haverson.
By acquiring Muskwa, Zodiac has achieved those objectives, he said.
Prior to the Muskwa deal, Zodiac’s key asset was rights to 72,000 net acres of land in the Monterey/Kreyenhagen oil shale formations.
The company has said it is particularly excited about the acreage in the Duvernay formation, which is estimated by the Alberta Geological Survey to have 443 trillion cubic feet of natural gas and 73 billion barrels of oil and natural gas liquids in place.
There have recently been several discoveries in the Duvernay, to the south of Muskwa’s land position, Zodiac said in a press release.
The acquisition of the Montana assets provides exposure to two conventional light oil projects.
“There was no acquisition that came close to the leverage we get with Muskwa,’’ said Bob Cross, a Canadian financier and significant shareholder in both Muskwa and Zodiac, who also participated in the conference call.
It is expected that three members of Muskwa’s management team – President and CEO Rick Jackson, CFO Max Zureski, and vice-president, exploration David Bilenduke – will join Zodiac in management roles.
Under the terms of the transaction, Zodiac will issue 85.7 million shares, an amount that represents a 25% dilution to Zodiac, which said it is paying $115 per acre for the acreage being acquired.
Zodiac shares were down 12.5% to 7 cents Wednesday, leaving the company with a market cap of $35.2 million, based on 359.6 million shares outstanding. The 52-week range is 14 cents and 3.5 cents.