Alberta Energy makes bid for Pacalta; reaction awaited

Alberta Energy Co. Ltd. (AEC) has announced an offer to acquire all of the outstanding shares of fellow Calgary-based independent Pacalta Resources Ltd. for a total of about $748 million (Canadian), including the assumption of $274 million in Pacalta debt and working capital deficiency. Pacalta's board of directors has scheduled a meeting to consider the offer and possible alternatives.

AEC says the offer constitutes a premium of about 29% over the 10-day market average share price of Pacalta, also based in Calgary.

"These assets meet the disciplined growth and value criteria we apply in approaching acquisitions and exploration," said AEC Pres. and CEO Gwyn Morgan.

The offer constitutes a move on the part of AEC to increase its assets in South America.

"Together with our established base in Argentina, the acquisition of Pacalta will provide a solid platform for profitable growth in South America," said Morgan. "Pacalta has done an admirable job of building a strong position in Ecuador's Oriente basin.

"Our operating strategy is to be a dominant player with concentrated land blocks and high working interests," explained Morgan. "Pacalta's asset portfolio in the Oriente and Putamayo basins (of, respectively, Ecuador and Colombia) has those characteristics."

Pacalta's operations

Pacalta solds its Canadian operations to Cascade Oil & Gas Inc. in 1997 to concentrate on its South American assets-particularly in Ecuador's Oriente basin (OGJ, Oct. 20, 1997, p. 45). At yearend 1998, Pacalta's proved reserves were 180 million boe. Its production target for 1999 is 45,000 b/d of oil.

During the past several months, Pacalta has been engaged in discussions with several oil and gas companies, including AEC, regarding potential joint venture opportunities in Ecuador and elsewhere. Last week, a memorandum of understanding (MOU) was signed by Ecuador and a group of independent oil companies, including Pacalta. The MOU was for construction and financing of a heavy oil pipeline in Ecuador with an initial capacity of 150-250,000 b/d.

Hostile or friendly?

Morgan considers AEC's offer "friendly."

"Pacalta's financial advisors initially contacted AEC in December 1998 to explore a possible role for AEC in developing some of Pacalta's properties in the Oriente basin," said Morgan. "Since that time, a number of constructive and cordial discussions have taken place between our companies."

Morgan is optimistic about Ecuador in general and about Pacalta's holdings in particular: "We are confident in the future of these assets, and we believe this offer should also be viewed as a vote of confidence in the difficult but necessary changes being implemented by the government of Ecuador."

It will not be known whether Pacalta's agrees with AEC's assessment of the offer as friendly until Pacalta's board meets to evaluate the offer. But the initial signs are not entirely favorable.

"We recognize that AEC has been very aggressive in positioning their company to be opportunistic in the current environment," said Pacalta Pres. and CEO John D. Wright.

"We believe that AEC has recognized only a portion of the underlying value of Pacalta's asset base. Furthermore, we believe that the absolute value of this offer falls significantly short of our long-term expectations for our stock price.

"Pacalta's management team is diligently working to explore all avenues available to maximize shareholder value."