Merger and acquisition activity among Canadian exploration and production firms continues at a fairly moderate pace. Meanwhile, Canadian pipeline companies are buying and selling assets worldwide in efforts to reorient their global portfolios.
Leading off the E&P asset action, Murphy Oil Corp.'s Canadian unit will acquire Calgary-based Beau Canada Exploration Ltd. And Canadian 88 Energy Corp., Calgary, says it will consider selling some or all of its properties because its share price does not reflect the value of its assets.
Meanwhile, Calgary-based TransCanada PipeLines Ltd. says it expects total proceeds of about $3.45 billion (Can.) from its sale of noncore assets this year, well above the original target of $3 billion.
Other Canadian pipeline firms have closed acquisition deals. A unit of Williams' energy services business recently closed the $540 million (US) purchase of the NGL portion of TransCanada's midstream operations, Williams reported. And Alberta Energy Co. Ltd., (AEC) Calgary, completed a $68 million purchase of a 36% interest in the Trans-Andean crude oil pipeline between the Neuquen basin in Argentina and Concepcion on the Chilean coast.
Murphy to buy Beau Canada
Murphy Canadian plans to acquire producer Beau Canada in a $381 million (Can.) takeover deal.
Murphy will pay $2.15/share in cash, a 27% premium over Beau's recent closing price of $1.69/share. Murphy will also assume $183 million in debt.
Harvey Doerr, president of the Murphy Canadian unit, said Beau's natural gas production of 57 MMcfd in western Canada will almost double Murphy production in Canada. He said the outlook for North American natural gas is very good, and that outlook is incorporated in Murphy's strategy. Beau also produces about 5,200 b/d of liquids.
Beau also has more than $200 million in tax pool credits, which are an asset for companies facing rising taxes on high commodity prices.
Beau Canada Chairman Bruce Libin said putting the company on the market for bids produced a good result for shareholders.
Earlier this year, Beau Canada agreed to sell its 20 MMcfd Peggo gas field in British Columbia to an unnamed buyer (OGJ, Aug. 7, 2000, p. 24).
Canadian 88 sale
The announcement of the possible sale of mid-sized natural gas producer Canadian 88 comes just 8 months after Duke Energy Corp.'s March purchase of a 20% interest in the company.
Joseph Pritchett III, a former Duke executive who heads Canadian 88, said it may be time to realize value in the company.
Pritchett said the company has a lot of high-impact prospects and good tax pools. He noted Canadian 88 is especially strong in natural gas prospects at a time when good prospects are in short supply.
Duke's initial $50 million (Can.) investment was tactical-it saw value in assets that were not priced correctly in the marketplace, Pritchett said.
The company has an estimated $420 million in tax pools that could be applied against taxes by a buyer. Shares, which traded at $1.80 in March when Duke bought in, rose to $3.85 Aug. 10 on the Toronto Stock Exchange on word of a possible sale.
Canadian 88 has properties ranging from the Rocky Mountain Foothills region of Alberta to Offshore Nova Scotia. Its assets include the Waterton natural gas field in southwestern Alberta with reserves of 500 bcf. The company produced 84.3 MMcfd of gas in the second quarter, a drop of 19% from the same period in 1999.
Greg Noval, the controversial former CEO of Canadian 88 who founded the company in 1988, left company management following the Duke buy-in. Noval remains a director of Canadian 88 and owns an 8% interest in the company.
Noval was noted for a number of hostile takeover bids, including attempts to take over Morrison Petroleums Ltd. and the Canadian unit of Texaco Inc.
More recently, Canadian 88 share values fell prior to Noval's departure after the company failed to meet production targets.
Companies named by analysts as possible buyers include Kerr-McGee Corp., which has interests with Canadian 88 off Nova Scotia; Murphy Oil Corp.; Devon Energy Corp.; and Talisman Energy Inc.
TransCanada's asset sale
As a result of exceeding its goal from selling its noncore assets, TransCanada will record a positive $200 million (Can.) after-tax adjustment to its 1999 provision for discontinued operations in third quarter 2000. It also expects to record gains on asset sales in continuing operations of $45 million after-tax in 2000, resulting in a total positive adjustment from divestitures of $245 million after-tax.
The company began selling noncore assets in December 1999 to focus on its core natural gas transmission, power, and gas marketing activities in Canada and the northern tier of the US.
Noncore sales have included international pipeline interests, its 50% interest in the Express crude oil pipeline system in the US, midstream operations, and Cancarb Ltd., a carbon black business in Alberta.
CEO Doug Baldwin said the asset sale is achieving its intended result of strengthening the company's balance sheet and providing a solid financial foundation for future growth.
Since the start of 2000, the company has retired or repurchased about $1.75 billion of term debt and preferred shares. It also plans to repurchase $200 million in redeemable preferred share securities in November.
Baldwin said the decrease in financing charges on debt and efficiencies in corporate costs will lead to improved earnings and cash flow for the company.
TransCanada also announced it will take a $120 million noncash after-tax charge resulting from losses associated with certain long-term natural gas contracts entered into in previous years to support specific business initiatives and pipeline investments. As an overall result, the company expects to record a total $125 million after-tax gain in its year 2000 accounts.
The company said price differentials between gas supply points and market points in the contracts involved in the noncash after-tax charge had deteriorated and the decline in the value of these contracts is no longer temporary. The company said it recorded a $13 million after-tax loss on these contracts in the first 6 months of this year.
Other deals
Williams' agreement to purchase the NGL portion of TransCanada's midstream operations was originally announced in August (OGJ Online, Aug. 3, 2000). The purchase includes about 6 bcfd of gas processing capacity, about 225,000 b/d of NGL production capacity, an NGL pipeline system, and more than 5 million bbl of NGL storage capacity. It also includes TransCanada's interests in the Cochrane, Redwater, Empress II, Empress V, and Younger NGL and extraction facilities, as well as the West Stoddart natural gas processing plant.
AEC has closed on the purchase of an interest in the 266-mile Oleoducto Transandino line, which has capacity of up to 115,000 b/d. Other partners in the line are Unocal Corp., Spain's Repsol-YPF SA, and Chile's Empresa Nacional de Petroleo.
AEC acquired its interest from Repsol-YPF, which had held a 54% interest in the project. The deal is expected to close this month.