Burlington Resources Inc., Houston, has signed a definitive agreement under which it will acquire all the common shares of Poco Petroleums Ltd., Calgary, for $1.75 billion and assume $0.75 million in Poco debt.
The merger will create North America's fourth-largest natural gas producer, and the largest among independent gas producers, say the firms. North America's three largest gas producers are BP Amoco plc, the pending Exxon Corp.-Mobil Corp. combine, and Royal Dutch/Shell.
Burlington Resources' and Poco's combined average 1998 production was 2.1 bcfd of gas and 106,000 b/d of oil, and their combined worldwide reserves, as of yearend 1998, totaled 9.9 tcfe, 1.9 tcfe of which is attributable to Poco.
The firms' total net global acreage is 21.4 million acres, 3.6 million of which are in Canada. And, on Aug. 16, 1999, their combined market capitalization was $9.9 billion.
Under terms of the agreement, Poco shareholders will receive 0.25 Burlington common equivalent share for each Poco share, implying a Poco share price of $11.33.
The transaction has been unanimously approved by both companies' boards, and Poco directors and officers have agreed to vote their shares in favor of the deal.
The acquisition will be accounted for as a pooling of interests and is expected to qualify as a tax-free reorganization.
"It is anticipated that, excluding the impact of any one-time transaction-related charges, the transaction will be immediately accretive to earnings, cash flow, and net asset value per share in 1999 and beyond," said the companies.
They expect to complete the deal by yearend.
Strategic fit
The key assets that Poco will bring to Burlington Resources are its operations in Canada, where Burlington currently has no holdings.
Burlington Resources Chairman Bobby Shackouls said, "Establishing a major presence in Canada enhances our position as a dominant independent E&P company with a strong North American natural gas focusellipse The addition of Poco's 3.1 million acres of undeveloped leasehold to our quality fee mineral and acreage positions will significantly enhance our inventory of high-potential exploration (properties)."
Poco Pres. and CEO Craig W. Stewart explained his company's leveraging toward Canadian gas: "Poco recognized a number of years ago that the traditional discount that Canadian gas was trading for, relative to prices in the United States, would disappear. We also believed strongly that prices would rise in North America as a whole and positioned our production base towards natural gas."
Stewart added, "In reviewing a broad range of strategic opportunities over the past several months, it became increasingly obvious that the business combination of Poco Petroleums and Burlington Resources made compelling sense strategically, operationally, and financially."
Shackouls says there is virtually no overlap between two companies' operations.
For this reason, the firms said they anticipate that "substantially all management, staff, and operational employees of Poco will become part of the combined enterprise, which will continue to have a major presence in Canada."
PaineWebber Inc., a New York based financial analyst, has maintained its rating of Burlington Resources stock as "attractive" following the merger announcement: "This deal strategically positions Burlington in a new core area with additional probable and possible reserves and provides the combined entity with substantial capital to step up its frontier exploration program, pursue proximal acquisitions, and participate in infrastructure build-out opportunities in northwestern Canada."
"With this strategically sound acquisition 'in the bag,' Burlington remains well-positioned to take advantage of potential acquisition opportunities with a strong balance sheet and a debt-to-book capitalization of only 42%.
"The company has also bolstered its inventory of future drilling and exploration opportunities with a new strategic foothold in the highly prospective regions of northern and western Canada.
"We continue to see solid strength in the company's well-balanced, geographically diversified portfolio of exploitation and exploration projects," said PaineWebber. "We maintain our view that the company's experienced management team possesses the 'right stuff' and ample balance-sheet fire power to execute their value-creation strategy."
Shackouls confirmed that Burlington Resources intends to continue its strategy of growth through acquisitions (the company acquired Louisiana Land & Exploration Co. in 1997). "ellipseWith Poco as its partner in Canada," he said, "(Burlington Resources) will be better positioned than at any time in its history to continue the implementation of our aggressive, global, value-oriented capital program."
