Union Pacific Resources to buy Norcen in $3.5 billion deal

Another big merger involving a Canadian company was disclosed last week, albeit somewhat overshadowed by the NOVA/Trans-Canada megamerger (see related story, this page).

Big independent Union Pacific Resources Group Inc. (UPR), Fort Worth, will acquire Canadian oil and gas company Norcen Energy Resources Ltd. in a $2.6 billion cash offer. The acquisition increases UPR's estimated 1998 revenues to $2.7 billion from $1.9 billion. UPR is offering $13.65/share for all outstanding shares of Norcen stock, which represents a 29% premium over Norcen's closing price on Jan. 23. UPR will also assume Norcen's outstanding debt of $900 million, bringing the total cost of the deal to $3.5 billion.

A significant key to the transaction was Toronto mining conglomerate Noranda Inc.'s promise to sell its 49.5% share in Norcen to UPR, giving UPR complete control of Norcen.

"With UPR's leadership position in the U.S. and Norcen's strong position in Western Canada and Latin America, this combination will create a well-balanced North American company. The assets are diversified, and there is substantial reserve and production upside that will generate significant, long-term value for our shareholders," said Jack L. Messman, UPR chairman and chief executive officer.

UPR anticipates few changes in operating personnel or office locations. Canadian operations of both companies will remain headquartered in Calgary, and Norcen's Gulf of Mexico operations offers UPR an opportunity to create a presence in Houston. Norcen's Guatemala operations will also stay in place.

Reserves, production

Based on 1997 yearend figures for UPR and UPR's estimates for Norcen's proved reserves of about 550 million boe, the new enterprise will have proved reserves in excess of 1.23 billion boe, an 80% increase from UPR's proved reserves on a stand-alone basis.

The combined company will have a reserve mix of 57% natural gas and 43% oil and natural gas liquids. Based on fourth quarter 1997 rates, the combined company's production would have been in excess of 436,000 boed, a 63% jump from UPR's fourth quarter production of 268,000 boed. Norcen's reserves-to-production ratio of 9.9 years will increase UPR's to 7.9 from 6.8 years, on a combined basis.

UPR says it is paying about $5.63/boe for Norcen's proved reserves.

Norcen's key properties are located in four areas: western Canada, the Gulf of Mexico, Venezuela, and Guatemala. Norcen also owns producing properties in Argentina and off Australia.

Both companies have properties in the Louisiana shelf portion of the Gulf of Mexico and are expanding in the deepwater gulf. UPR is beginning development of its 20-block Mississippi Canyon Gomez discovery, and Norcen is evaluating the Boomvang discovery involving five blocks in the East Breaks area.

Norcen also is drilling on the five-block Betelguese prospect in the Mississippi Canyon area. Combined, the two companies will have an interest in 37 tracts in the deepwater gulf, two deepwater gulf discoveries, and commitments for three deepwater drilling rigs.