PanCanadian Petroleum Ltd., Calgary, said Monday it plans to purchase the upstream, midstream, and marketing divisions of Montana Power Co., Butte, Mont., for $475 million (US). The sale includes subsidiaries that have interests in exploration, production, and marketing of crude oil, natural gas, and gas liquids in the US and Canada.
The acquisition includes reserves consisting of more than 90% natural gas and associated liquids. It will increase PanCanadian's production by 94 MMcfd for gas�an increase of more than 10%�and 3,800 b/d for crude oil and NGL.
The acquired properties will add reserves of 550 bcf of gas and 20 million bbl of oil and NGL to PanCanadian's portfolio. The added gas production will immediately raise PanCanadian's natural gas output, as a percentage of total production, to 58%, based on a 6-to-1 ratio of gas to barrels of oil equivalent.
"We are effectively expanding our major core area with highly prospective lands similar in size to our prolific Palliser Block," said David Tuer, PanCanadian's president and CEO. "The potential in these assets is significant, and over the next few years, we will add substantially to PanCanadian's daily natural gas production."
Montana Power will use the proceeds from the sale to expand Touch America, its national fiber-optic and wireless broadband telecommunications subsidiary, said Robert P. Gannon, Montana Power's chairman and CEO. "We believe there will be a meshing of business strategies and that cultural synergies exist between the purchased companies and PanCanadian."
In March, Montana Power said it would divest four of its traditional energy businesses�coal production, natural gas transmission and distribution, independent power production, and oil and gas exploration and production�to focus on its telecommunications business.
Properties acquired
The acquisition includes a major property in Colorado's Denver basin that produces about 21 MMcfd of gas, as well as minor properties in the Anadarko basin of Oklahoma and the Green River basin of Wyoming. Also included are three natural gas pipelines that cross from Montana into Alberta and Saskatchewan. They allow direct access to US markets for southern Alberta and Saskatchewan gas and serve more than 1.2 million net acres of developed and undeveloped lands, most of it concentrated along the Canada-Montana border.
The acquired midstream assets include a gas marketing company in Butte and a deep-cut gas processing and fractionation plant in Colorado. The Ft. Lupton plant processes more than 60 MMcfd of gas and 5,500 b/d of NGL and condensate.
Other assets in Alberta and Saskatchewan include Altana Exploration Ltd., Calgary, and its 43 MMcfd of gas production and 674,000 gross acres of developed and undeveloped land.
In Montana, PanCanadian will receive 12 MMcfd of gas production, 583,000 gross acres of developed and undeveloped land, well-developed gathering pipelines, three pipelines crossing the Canada-US border, and Montana Power Trading & Marketing Co. In Colorado, PanCanadian will gain 21 MMcfd of gas production, 2,700 b/d of oil and NGL output, and 133,000 gross acres of developed and undeveloped land.
In Wyoming, it will acquire production of 9 MMcfd from the Green River basin and 230,000 gross acres of developed and undeveloped land. PanCanadian also is acquiring in Oklahoma 9 MMcfd of gas production from the Anadarko basin and 38,000 gross acres of developed and undeveloped land.
The transaction is subject to regulatory approval and is expected to close by Oct. 31. The acquisition will be financed with $200 million of available cash and a $500 million debt facility.
Production and reserves account for $520 million of the purchase price, while the remainder is made up of $135 million for the midstream and marketing assets, $40 million for the undeveloped land, and $7 million of working capital. PanCanadian is paying 77�/Mcfe of proven and one-half probable reserves.
