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Celtic brings in the green

Another natural gas company gets bought by a major player. Who's next?

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Oct 18, 2012

by Max Fawcett

The news that Celtic Exploration had received a lucrative takeover bid from ExxonMobil worth an estimated $3.1 billion – one that pushed the stock up over 30 per cent – made plenty of people’s days in Calgary yesterday. But nobody was happier than Celtic president and CEO David Wilson, who fulfilled the vision he had for the company when he invested $3 million to create it from a junior capital pool company a decade ago. “We’ve been building the company specifically in the last five years with big resource-style prospects with the intention of selling it at some point,” he told the Calgary Herald yesterday. “That’s why we never did do any big joint ventures. We wanted to keep everything real clean for the day someone stepped up and wrote the cheque.”

That cheque may well get bigger before the deal closes, too. ExxonMobil is offering $24.50 per share, but the market seems to think that will rise before all is said and done given that Celtic shares (TSE: CLT) are trading at over $26. Celtic agreed to pay a break fee of $90 million if the deal with ExxonMobil doesn’t go through. Meanwhile, after takeover bids for both Progress Energy and Celtic Exploration, the market appears to be turning its attention to other companies with gas-rich assets in the region (primarily the Montney and Duvernay shales). Painted Pony Petroleum (TSE:PPY) and NuVista Energy (TSE:NVA), for example, are both up strongly on the news.

They’re not the only energy stocks that could get a boost in the near term, either. According to Canaccord analyst John Gerdes, there’s at least 40 per cent upside to E&P stocks right now, and while some of that will likely be driven by M&A activity, he says the real push will come when the market realizes that $90 oil is here to stay. Shares of natural gas companies are also undervalued, he said on an appearance on BNN yesterday, but he thinks the demand switching from coal to gas that’s driven the price of the commodity back above $3 is in the process of petering out. Still, he says, the subsidence in drilling activity should lead to an erosion of the on-shore North American supply base and push prices towards the $4 level – provided, he says, we get a normal winter. Whether that’s going to happen is anyone’s guess.

PS: In case you were wondering whether anybody had picked Celtic Exploration in the Alberta Venture Stock Picking Contest, here are the latest results.

 

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