Paramount Resources (POU-T) has arranged a $470-million mid-stream asset sale. At the heart of the sale is the 6-18 gas plant in the Karr Montney. The liquids-rich Karr Montney asset contributes almost one-third of Paramount's total production of around 81,300 barrels of oil equivalent a day (as of the first quarter). Paramount has been working to expand the facility's gas capacity to 150 million cubic feet a day from 100 million, an expansion that is scheduled to be on-line in 2020 and cost a total of $145-million in 2019. That $145-million was not included in Paramount's $350-million 2019 budget, so for the past few months, the company has been "evaluating financing alternatives" for the project's completion. Evidently the best alternative was simply to sell the plant.
The buyer is CSV Midstream Solutions, a Calgary-based, Apollo-backed mid-stream service provider. In a separate press release, CVS announced that it is being acquired by Northleaf Capital Partners, a Toronto-based private markets fund manager. Jared Waldron, managing director of infrastructure at Northleaf, declared CSV's various assets (which are in the Resthaven Montney, the Pipestone Montney and, after the Paramount deal, the Karr Montney) to be "a particularly attractive investment opportunity due to the quality of the underlying resource." Paramount would no doubt agree. It has eventual ambitions of roughly doubling its Karr Montney production to 40,000 barrels a day, and plans to continue to use the 6-18 facility, but under a mid-stream service arrangement. This will include fee-for-service terms, a reliability guarantee and a 20-year take-or-pay volume commitment. As well, once the deal closes next month, Paramount will be reimbursed for the $75-million it has spent on the plant expansion so far.
At nearly half a billion dollars, this is a sizable transaction, but is in fact on the smaller side next to the other deals that Paramount has arranged over the last few years. The company began exploring asset sales in 2015 as a means to reduce its heavy debt. In March, 2016, it sold its mid-stream assets in the Musreau area to Pembina Pipeline for $600-million. This was followed up in July, 2016, with a massive, $1.9-billion sale of upstream assets in the Kakwa area to Seven Generation Energy (VII-T) That deal included 33.5 million shares of Seven Generations, valued at $837-million in total. Paramount quickly sold 29.7 million of them for $735-million and then distributed the rest to shareholders. This proved a good decision. Had Paramount held on to all of those shares, they would be worth a mere $215-million today.) Paramount changed course in 2017 and closed two sizable acquisitions, namely the takeovers of Trilogy Energy and Apache's Canadian subsidiary, for a combined cash-and-share total of about $1-billion. Then 2018 brought a return to asset dispositions as Paramount sold its Resthaven/Jayar property for a relatively paltry $340-million. The new sale of the Karr 6-18 plant will, as before, go toward supporting the balance sheet, which is starting to show a creeping debt load again. As of March 31, 2019, net debt was $903-million, up from $705-million a year earlier.
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