PKN Orlen buys upstream companies in Canada and Poland

Orlen petrol station in Warsaw, Poland
"Wars39DSC 1187" by Wistula - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

Poland’s biggest oil company, the state-owned PKN Orlen SA, has gone on a shopping spree purchasing upstream companies in Canada and the U.S.

The acquisition drive – in line with the company’s objectives of purchasing at least one production asset a year – allows the company to benefit from the currently low crude oil prices as well as diversify’s Orlen’s revenue stream tied to its refining and retail businesses. Today, the company announced the purchase of the Canadian company Kicking Horse Energy and FX Energy, Inc. – an independent oil and gas E&P company with production in the U.S. and Poland.

In Canada, PKN Orlen currently holds promising areas within the Dunvegan, Cardium and Montney formations, producing over 7,000 barrels of oil equivalent (boe) a day, with 2P reserves at approximately 50m boe.

Kicking Horse Energy’s key assets are situated in the region of Kakwa, Alberta, and are characterised by high production potential. The field economics in this region is one of the highest in Western Canada: it carries low risk and it ensures good prospects for growth for the Orlen Group. According to the assessment performed as part of the due diligence process, upon the execution of the transaction, Orlen expects to increase its daily production by over 4,000 boe, and to expand its resource base by approx. 30m boe of 2P reserves.

The Kicking Horse equity purchase price is approximately CAD 293 million (ca. PLN 842 million), which represents CAD 4.75 (PLN 13,65) per share. The transaction will be finalised upon the fulfilment of all the terms and conditions of the agreement. The planned date for the transaction closing in 4Q, 2015.

Commenting on the purchase of the Kicking Horse, Jacek Krawiec, President of the Management Board of PKN Orlen, said: “The experience gained during previous acquisitions makes it possible to achieve upstream synergies. Orlen Upstream Canada began operations on hydrocarbon deposits in Alberta two years ago, following the acquisition of TriOil Resources. Since that time, we have been able to significantly increase our resource base and production volumes. This new transaction will considerably strengthen our position in this area.”

FX Energy is an upstream company with headquarters in Salt Lake City, USA, and Warsaw, Poland. It predominantly engages in production, development, and exploration activities in Poland, with some additional modest oil production and oilfield service activities in the United States.

As a result of today’s transaction, holders of FX Energy common stock will receive consideration of $1.15 per share in cash, which represents a 22 percent premium over the average closing price for the Company’s common stock for the 60 trading-day period ended on October 12, 2015. The transaction values FX Energy at approximately $119 million, including the Company’s net debt at June 30, 2015.

David N. Pierce, FX Energy’s President and Chief Executive Officer, commented, “Following a thorough process conducted with our financial advisor, the Board of Directors determined that this transaction provides the best opportunity to deliver value to our stockholders in view of the challenges we face with the current commodity-price environment, currency exchange-rate fluctuations and our current capital structure and limited access to the capital necessary to realize the value of our assets in Poland.”

As Bloomberg reports, FX Energy’s natural gas production in Poland stands at about 350,000 cubic meters a day, or 2,135 boe with reserves amounting to 8.4 million boe. Orlen’s total reserves will rise 76 percent to 88 million boe after the deals are completed.

Orlen has been drilling for both conventional and shale gas in Poland, but has yet to start production.

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