Alberta Energy Co. Ltd., Calgary, on Wednesday announced that its subsidiary AEC Oil & Gas (USA) Inc. will acquire the common shares of McMurry Oil Co. and other private interests. The acquisition will give AEC 1.2 tcf of proven and probable natural gas reserves in exchange for $910 million (Can.) in cash. This will raise AEC's gas reserves total to 5.4 tcf, making AEC's gas reserve holdings the largest in Canada and third largest among independent producers in North America.
The deal is expected to provide immediate and long-term growth in AEC's cash flow and earnings. Cash flow is anticipated to rise $0.45/share for the rest of 2000 and $1.00/share in 2001 as a result of the acquisition.
Growth strategy
The purchase will establish a new platform for growth for AEC in the northern US Rockies�a strategic focus area for the company�allowing it to explore for more large fields from AEC's new Denver-based business unit, said Gwyn Morgan, AEC president and CEO. As gas demand strengthens in the US, the Rockies is expected to be at the forefront of supply development, as producers begin looking for additional US gas resources.
The companies being acquired hold a major interest in southwestern Wyoming's Jonah field, one of the largest gas fields in the US Rocky Mountains. Discovered in 1993, Jonah is a 1 tcf gas field producing sweet gas. The Jonah reservoir consists of deep, low-permeability, high-pressure gas trapped in over 3,000 ft of multizone sands. Total operated working interest gas production from Jonah is 140 MMcfd.
The field is "ideally situated" near the Opal gas hub, Morgan said, facilitating ready market access. Through continued development, Jonah output is expected to reach 180 MMcfd in 2001 and 220 MMcfd in 2002.
About 58% of AEC's Year 2000 production base will now consist of North American gas. The deal will raise AEC's proforma gas sales in 2000 to about 1.080 bcf/d, up 19% from 1999 levels.
AEC also has offered to buy an additional 6% working interest in the Jonah field from other owners.
Meanwhile, AEC's Midstream division has agreed to purchase 92.5% of Green River Pipeline LLC, which owns Jonah Gas Gathering Co., for $240 million (Can.), and has offered to buy the remaining 7.5% interest. The pipeline is expected to contribute about $45 million (Can.) of annual operating cash flow in 2001.
The system consists of 245 miles of pipeline infrastructure, which connects to major interstate markets at Opal, the western Wyoming hub. The Jonah system currently transports 320 MMcfd under contract to 14 producers in the region. Expansions under way will increase capacity to 440 MMcfd.
The deal will take effect June 1, pending regulatory approval. Most of McMurry's current employees will likely be offered employment with AEC Oil & Gas, AEC said.