Vermilion says Canadian investment angst won better Spartan deal

Vermillion bought Spartan for about C$1.18 billion ($910 million) in stock to bulk up its light-oil production and acreage in southeast Saskatchewan in a deal that closed earlier this month. Spartan’s holdings aren’t affected by the pipeline bottlenecks that have plagued heavy oil producers in Alberta, and they’re in a province that has been more consistently supportive of the oil industry, Marino said in an interview with Bloomberg Television in New York.

However, a drumbeat of negative sentiment about pipeline constraints, regulations and international oil companies divesting their Canadian holdings helped Vermilion buy Spartan at a bargain price, he said.

Because of “this exit from Canadian investment that occurred over this past couple of years, this market has actually come to represent great value for transactions like this one,” Marino said. “We were able to get that very much at a discount compared to where this enterprise previously traded.”

Vermilion isn’t likely to make another major Canadian acquisition, and instead sees potential for acquisitions in Europe, he said. The Calgary-based company has seen growth in France and Germany and is expanding drilling in Slovakia and Croatia. It also has a moderate growth profile in the Netherlands and operates a gas field offshore of Ireland. Even after the Spartan deal, Vermilion will generate about 65% of its free cash flow overseas, compared with about 35% in North America, he said.

“We’re in a sufficient number of markets in Europe that we could continue to expand that franchise, consolidate the industry and continue this very rapid growth that we’ve had over the last couple of decades in Europe,” Marino said.