Canadian 88 reveals new business strategy, plans to buy RMX Exploration

Sept. 9, 2002
Canadian 88 Energy Corp. has entered into an agreement to acquire all of the issued and outstanding shares of private oil and gas company RMX Exploration for $26.1 million in cash and assumed debt.

By OGJ editors

HOUSTON, Sept. 9 -- As part of a detailed, 3-year business strategy to prioritize its exploration and development plans and reduce overall costs, Calgary-based Canadian 88 Energy Corp. has entered into an agreement to acquire all of the issued and outstanding shares of private oil and gas company RMX Exploration Ltd., also of Calgary, for $26.1 million in cash and assumed debt.

Canadian 88 also revealed that it would exit its east coast land position in Canada—which covers about 750,000 net acres—while concentrating most of its efforts on the exploration, development, and production of sour and sweet natural gas in the western part of the Western Canadian Sedimentary Basin.

"Exploration will remain the principal cornerstone of Canadian 88's strategy," the company said.

RMX purchase
Both companies' boards have already approved Canadian 88's purchase of RMX and RMX board directors are advocating that their shareholders accept the offer.

Nearly all of the RMX assets are those in which both Canadian 88 and RMX have a working interest. Canadian 88's purchase of RMX will add 950 boe/d, or about 9%, of estimated net production to its portfolio during the forth quarter. The deal also will add 1.9 million boe of proved reserves to the company's operations.

"An important element of Canadian 88's strategy is to grow and add value through synergies represented by acquiring other companies and assets," Canadian 88 said. "The RMX acquisition increases Canadian 88's working interest in many of its existing properties and, at current natural gas commodity price levels, is immediately accretive to cash flow and earnings per share," the company added.

Canadian 88's 3-year plan
Canadian 88's plan will involve a "major" cost-reduction program, which is presently under way, the company said. Among other savings, Canadian 88 has taken steps to shave $3 million/year from its general and administrative (G&A) costs, with "further reductions" expected next year. "G&A costs in 2002 were budgeted at $13 million, of which 55% were to be expensed and 45% capitalized," the company said.

The company also plans to take immediate steps to delist itself from the American Stock Exchange, it said.

The company will reduce operating costs as well through "a combination of initiatives," Canadian 88 said. "We expect operating costs to average $5.50/boe in 2002 with reductions expected in 2003," it noted.

After high-grading its list of drilling prospects and reducing its drilling and facility capital costs, Canadian 88 hopes to pin its finding and development costs between $10-12/boe by 2003, it said.

Of the $40 million in capital outlays that Canadian 88 intends to spend during 2002, 50% will be spent on drilling programs in its Strachan, Olds, High River, Medallion, and Swalwell areas in southern Alberta. During 2003, Canadian 88's plans to spend some $75 million in capital expenditures, 60% of which will be spent on drilling.

"About 35% of the full capital program (during 2003) will be allocated to development activity at Olds, 40% to higher risk prospects on the company's Foothills and Swan Hills type opportunities and 25% to lower risk programs such as Medallion and Swalwell," Canadian 88 said.

"Our review of the assets and operations of the company was thorough," said Stephen J. Savidant, Canadian 88 president and CEO, "and we confirmed that the assets are solid, we have a talented and very determined group of people in the organization and the strategy is in place. . .." Savidant was named to his current position with the company earlier this year (OGJ, June 10, 2002, p. 40).