Gulf Canada to acquire Crestar

Gulf Canada Resources Ltd. has agreed to acquire Calgary-based Crestar Energy Inc. in a stock transaction valued at $2.3 billion, a move that propels it into the top five independent Canadian producers and the top ten producers group for North America as a whole.

Gulf Canada Resources Ltd., Calgary, said Monday it has agreed to acquire Crestar Energy Inc. in a stock transaction valued at $2.3 billion. The acquisition, which includes the assumption of $565 million in Crestar net debt after option proceeds, will give Gulf spots among the top five independent Canadian producers and the top ten independent producers in North America.

The acquisition raises Gulf Canada's production 59%, or 278,000 boe/d of production, and adds 586 million bbl of proven liquids reserves to Gulf Canada's assets, a 36% increase. It also raises its proven gas reserves 45% by adding 3.3 tcf of proven gas reserves and increases its acreage holdings 134% to 4.6 million net undeveloped acres in western Canada.

In addition, the purchase completes Gulf Canada's balance sheet restructuring and will be add to its cash flow and earnings per share, said Richard P. Auchinleck, president and CEO of Gulf Canada, during a conference call Monday. It also will fund Gulf's expansion of its diversified assets, including the Syncrude Canada Ltd. joint venture, the Surmount oil sands project, and exploration and production activity off Canada's East Coast, in the Canadian Arctic Mackenzie Delta area, and in international areas such as the North Sea.

Merging the two companies isn't a matter of melding overlapping properties, said Auchinleck, but creating a company with sizeable natural gas assets and interest in overseas properties with long-term potential.

The agreement calls for Gulf to offer 3.333 Gulf ordinary shares plus $3.25 cash for each Crestar common share, representing a value of $29.75/share. Crestar shareholders will be entitled to elect to receive a greater proportion of Gulf ordinary shares or cash, provided $185 million in cash is paid in total. The offer represents a premium of 19% over the closing price of $25 on Friday, Sept. 29.

With the improvement of Gulf Canada's balance sheet, Auchinleck said, the company will likely, for the short term, hold onto its assets from its Petrovera heavy oil partnership in Alberta with PanCanadian Petroleum Ltd. Auchinleck said the Petrovera assets are expected to generate $100 million for Gulf Canada this year. Crestar's experience with converting medium to heavy crude oil could be put to use in the Petrovera assets.

About 60% of Crestar's liquids production comes from its medium-grade oil production. This production is lumped into the heavy oil category, but the crude is mostly high-teens gravity oil from Alberta. Barry Jackson, president and CEO of Crestar, said Crestar's operating costs were lower than the average for most Canadian heavy oil producers.

The combined company will maintain Crestar's properties in Ecuador, where Gulf Canada sees "significant growth opportunities." Earlier this year, Crestar purchased all the outstanding shares of CMS Oil & Gas Ecuador LDC for $141.9 million (Can.) (OGJ Online, July 7, 2000).

Through the purchase, Crestar gained a 14% working interest in the Oriente basin's Block 16 area, which encompasses 519,000 acres in eastern Ecuador. The acquisition gave Crestar 5,000 b/d of oil production and 43 million bbl of proven oil reserves in the block.

The acquisition marked Crestar's first overseas venture. It's also considering using some of the funds raised to buy back shares of its Gulf Indonesia Ltd. subsidiary, Auchinleck said.

The transaction has been unanimously supported by the Crestar Board of Directors and its financial advisors. Gulf's offer will be conditional on not less than two-thirds of Crestar's shares being tendered. Under certain conditions, Crestar's Board of Directors has agreed to pay Gulf a $50 million break fee if the transaction is not completed. The offer will be open for 21 days following the mailing of the takeover circular.

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