Company News: Merger activity still in full force among oil, gas firms

Merger and acquisition activity among oil and gas companies remains a strong trend in the industry. Most notably, M&A activities have centered on US firms vying to acquire Canadian companies in an effort to establish a presence in Canada.

In recent US-Canada merger action:

• Dallas-based Hunt Oil Co. agreed to acquire Chieftain International Inc., Edmonton, Alta., for $600 million, or about $915 million (Can.). The deal marks the most recent of several Can- adian acquisition attempts for the privately held Hunt Oil.
• El Paso Oil & Gas Canada Acquisition Inc., a unit of El Paso Corp., Houston, agreed to buy Calgary-based Velvet Exploration Ltd. in a $280 million (US) transaction.
• Anadarko Petroleum Corp., Houston, agreed to acquire Gulfstream Resources Canada Ltd., Calgary, for $137 million (US). Anadarko is offering $2.65/share (Can.) in cash.

These notwithstanding, while some Canadian companies have continued to cut M&A deals with one another, other firms have reconsidered previously announced plans to merge. Examples of these agreements include:

• PanCanadian Petroleum Ltd. agreed to purchase Causeway Energy Corp. for $65 million (Can.) plus the assumption of $4 million in debt. Both companies are based in Calgary.
• Calgary-based Canadian 88 Energy Corp., meanwhile, decided to remain independent and dropped a sale process started last year, prompting Canadian Superior Energy Inc., also of Calgary, to withdraw its merger offer to Canadian 88 shareholders for approval.

Meanwhile, in the US, one other M&A deal has been announced: Cabot Oil & Gas Corp., Houston, said its board approved an agreement to acquire Cody Co., the parent of Cody Energy LLC, for $230 million in cash and Cabot stock.

Hunt-Chieftain transaction

A wholly owned Canadian subsidiary of Hunt Oil has offered to pay $29/share for the common shares of Chieftain. On June 15, Chieftain stock traded at $29.74/share on the American Stock Exchange.

The offer, announced on June 19, will expire 35 days after being mailed. Among other conditions, Chieftain must offer at least two thirds of its shares.

Chieftain's directors have unanimously agreed to support the offer, and have resolved to waive the company's shareholder rights plan.

Under certain circumstances, Chieftain would pay Hunt Oil a noncompletion fee of $20 million.

James B. Jennings, Hunt Oil president, said, "We are very pleased with this acquisition. Chieftain has historically had great success with the drill bit in one of our core areas of exploration-the Gulf of Mexico.

"...Chieftain also brings with it an outstanding inventory of exploration acreage and prospects. These exploration assets will complement Hunt Oil's current efforts in the Gulf of Mexico, where we have also had a number of successes over the years."

Although Houston-based Anadarko Petroleum Corp. defeated Hunt Oil in its bid for Berkley Petroleum Corp., Calgary (OGJ Online, Mar. 6, 2001), Hunt Oil has completed the acquisition of some Alberta properties from Canadian 88 Energy Corp. (OGJ Online, Feb. 27, 2001).

Hunt also agreed to buy Calgary-based Newport Petroleum Corp. last year in a stock purchase valued at $760 million (OGJ Online, May 15, 2001).

Hunt Oil's major areas of operation are in the Gulf Coast area of the US, Yemen, Western Canada, and Peru.

Chieftain is active in the US Gulf of Mexico, in southeast Utah, and the UK sector of the North Sea.

Following the announcement, Moody's Investors Service confirmed the company's issuer rating of A3. Moody's said the confirmation, "reflects Hunt Oil's strong liquidity and balance sheet, management's long-standing history of conservative financial policies, and the improved geographic diversification of its reserve base."

Hunt Oil's previous acquisitions of Newport Petroleum coupled with its purchase of Canadian 88 properties, Moody's said, "established Canada as a new core operating area" for the company.

El Paso's Velvet deal

Under terms of the agreement, which was mailed to Velvet shareholders late last month, El Paso will make a cash offer of $8.15 (Can.)/share and assume debt of $52 million (US).

Velvet's directors have agreed to tender their shares and to recommend that shareholders accept the offer. At least two thirds of the shares must be tendered for the offer to be valid. Velvet has agreed to pay a termination fee of $15 million (Can.) under certain circumstances.

"The acquisition of Velvet provides El Paso with a strong platform to build a significant production business in western Canada," said Rod Erskine, president of El Paso Production Co.

Velvet holds 172 bcfe of net proved reserves, about 59% of which are natural gas. Velvet's average net production is 54 MMcfed.

Anadarko-Gulfstream buy

Gulfstream's directors have approved Anadarko's agreement and plan to tender their shares-representing about 5.8% of Gulfstream-to Anadarko.

Gulfstream has been fighting off an offer by Sydney-based Roc Oil Co. Ltd. of $1.10/share (Can.) in cash (OGJ Online, Apr. 2, 2001).

Anadarko's offer is to be mailed by July 6 and remain open for 35 days from the mailing date. Anadarko expects to close the acquisition in the third quarter.

Gulfstream agreed to discontinue its efforts to find other alternatives and to close the data room it had opened (OGJ Online, Apr. 17, 2001). It will provide Anadarko the right to match competing offers.

The acquisition of Gulfstream will add 70 million boe of proved reserves and 4,700 b/d of oil production to Anadarko's portfolio. The deal will also expand Anadarko's activity in the Middle East, where Gulfstream has assets in Qatar and Oman (see map, p. 26).

"The Gulfstream properties provide Anadarko with production and exploration in the Middle East, which offers a world-class petroleum system with high exploration success rates and low finding and developing costs," said John N. Seitz, Anadarko president and CEO.

If the offer is not completed, Gulfstream will pay Anadarko $8 million (Can.).

Gulfstream's Middle East assets

In Qatar, Gulfstream holds interests in three blocks: 11, 12, and 13.

Covering 19,000 acres, Block 12 contains Al Rayyan field, which is currently producing 12,000 b/d of oil. Gulfstream holds a 65% working interest in the block. Under a newly ap- proved development plan, production from Al Rayyan is expected to double by 2002.

Lying south of Al Rayyan is Block 11. Two exploration wells are planned for this year on the 652,000-acre block, in which Gulfstream holds 49% interest.

Block 13, in which Gulfstream holds 65% working interest, is an exploration block that is on trend with the giant Dukhan oil field-which has 5 billion bbl of estimated recoverable reserves. Gulf- stream plans to start a comprehensive seismic program this year on the 215,000-acre area.

In Oman, Gulfstream holds 100% interest in Block 30, which it operates. Three gas fields on the block are under development and will eventually supply Oman. Production from the fields is expected to reach 80 MMcfd of gas by mid-2002.

PanCanadian-Causeway deal

PanCanadian's offer is subject to Causeway shareholder approval. It is expected to close later this summer.

PanCanadian will acquire Causeway's northern Montana and southern Saskatch- ewan properties, which include 8.5 MMcfd of gas production, reserves of 80 bcf on a proven and one-half probable basis, 210,000 acres of undeveloped land, and a 100% interest in the cross-border Chinook Pipeline.

In addition, Causeway operates a 1.12 million-acre concession in Palau, in which it holds a 38% interest.

Terry Schmidtke, general manager of PanCanadian's Great Plains business unit, said, "...These new long-life, low-risk assets clearly fit our existing assets and allow us to deploy our industry-leading technologies and exploration strategies to regions in Montana and Saskatchewan."

Canadian 88 refuses deal

During a conference call, Canadian 88 Pres. and CEO Joseph Pritchett told analysts, "We had serious interest from a number of prominent industry players. They were not willing to pay for the upside that I and the board believe exist."

Canadian Superior Energy made an unsolicited $700 million (Can.) bid for a merger with Canadian 88 in April (OGJ Online, Apr. 27, 2001.)

Richard Watkins, Canadian Superior vice-president, corporate development, issued a news release that stated, "Unfor- tunately for Canadian 88 shareholders, in Canadian Superior's opinion, no real go-forward strategy exists."

Canadian 88 announced a sales process on Oct. 10 to maximize shareholder value, with the support of its largest shareholder, Duke Energy Corp., Charlotte, NC.

Canadian Superior proposed changing the Canadian 88 board and exchanging 2.75 shares of Canadian Superior for each share of Canadian 88.

Canadian 88's board rejected the merger proposal, saying the offer did not offer enhanced liquidity or incremental value.

But Canadian Superior withdrew its merger proposal, citing "erosion" of Canadian 88's value. Canadian Superior alleged Canadian 88 refused to provide requested due diligence information. In addition, Canadian Superior claimed Canadian 88 directors "do not intend to allow" shareholders "the timely right to vote on the removal of their current board of directors" (OGJ Online, June 26, 2001).

Watkins said, "Canadian Superior is in the process of working toward completing a transaction regarding its East Coast holdings off Nova Scotia."

Cabot-Cody buy

Denver-based Cody's board and shareholders have approved the transaction. Cody has 166 bcfe of reserves-58% gas and 42% oil-and 50 MMcfd of production-84% gas and 16% oil-in Texas and Louisiana. Cabot said the transaction is valued at $1.39/Mcf based on proved gas equivalent reserves, without valuing the probable and possible reserve potential. It said the deal would increase its reserves by 16% to 1,185 bcfe and production 25% to 250 MMcfd, with the Gulf Coast providing about 50% of total daily volume.

Ray Seegmiller, chairman and CEO of Cabot, said, "Cody gives Cabot's Gulf Coast region a 3-year inventory of development drilling locations plus undeveloped acreage to complement its current inventory of exploration prospects."

Cody shareholders will get $168 million in cash and $62 million in stock, or cash and stock, at Cabot's election. Seegmiller said, "At this time, our intent is to issue to the Cody shareholders $62 million in stock. This would bring our pro forma debt-to-capital ratio to about 50%, still below the 52.6% where Cabot ended last year." The acquisition is expected to close on or before July 31.