Grafton doubles down on joint venture with Bellatrix

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Rick Grafton is looking beyond Bellatrix Exploration Ltd.'s current struggles, and has doubled down on a joint venture with the oil and gas producer.

The Calgary-based energy and finance veteran's Grafton Asset Management Inc. has signed a second JV, committing $250-million to developing Bellatrix lands over several years.

The deal follows one of similar value between Grafton and Bellatrix that was signed in mid-2013, targeting Cardium light oil and Notikewin/Falher natural gas reserves in Alberta.

The new alliance comes as Bellatrix faces an activist shareholder seeking to boost the value of its stock, which has been under pressure due to infrastructure constraints and an equity issue in the spring that had to be priced down, and sized down. The shares are down nearly 40 per cent since early May.

Last week, the New York-based hedge fund Orange Capital reported it had increased its stake in Bellatrix to 9.2 per cent. It is reported to be trying to engage the company's management on its plans for upping its value.

This has not deterred Mr. Grafton, who, before starting his current firm, had leadership roles at Canaccord, Avenir Capital, and who was a founding partner of FirstEnergy Capital Corp.

Under the terms of the new agreement, Canadian Non-Operated Resources Corp., a new firm owned by Grafton Asset Management, will fund 50 per cent of the capital spending on currently undeveloped lands, and will earn 33 per cent for Bellatrix's interest before payout. After payout, the stake will convert to a 10.67 per cent overriding royalty. Most of the drilling will take place between 2016 and 2018, the companies said.

Bellatrix's infrastructure constraints – that is, struggles moving oil and gas to market, and spending commitments on other operations – likely dictated the time frame for the agreement, TD Securities analyst Juan Jurrah wrote in a note to clients.

"[The doubling of Grafton Asset's commitment] is positive in our view because it suggests that asset performance is not a concern and merely just infrastructure related, which should be de-bottle-necked with their gas plant coming onstream in July 2015," Mr. Jurrah wrote.