Petro-Canada buying Prima Energy

By OGJ editors
HOUSTON, June 9 -- Petro-Canada, Calgary, plans to buy Prima Energy Corp., Denver, through a tender offer worth $534 million, or $39.50/share.

The boards of both companies unanimously approved this transaction, and Prima shareholders owning 21% of the common stock already agreed to tender their shares.

Petro-Canada plans to commence the tender offer within 10 business days. Closing of the tender offer is subject to customary closing conditions, including the valid tender of at least a majority of the outstanding shares of common stock and regulatory approvals. A vote of Prima's stockholders will be required only if fewer than 90% of its shares are tendered into the Petro-Canada offer.

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The New York-based Moody's Investors Service affirmed the debt ratings of Petro-Canada (Baa2 Senior Unsecured) following the company's announcement.

"At its current Baa2 rating, Petro-Canada has incremental debt capacity to accommodate the additional debt associated with this transaction, even after considering the recently announced Buzzard acquisition," Moody's said.

Petro-Canada agreed to acquire 29.9% interest in the Buzzard oil field in the UK North Sea through the purchase of Intrepid Energy North Sea Ltd. for $840 million (OGJ Online, June 1, 2004.)

"Moody's believes the current rating and stable outlook provide some financial flexibility for the company to execute its growth plans, however this flexibility has been diminished by these two transactions," said John Diaz, Moody's managing director, corporate finance group.

"We also note that the Canadian federal government has announced its intention to sell its stake in Petro-Canada so the company will need to manage the potential purchase of its own stock in light of these recent capital commitments," he added.

The Canadian government announced in late March its plans to sell its remaining 49 million Petro-Canada shares during the 2004-05 fiscal year. Timing and details of the share sale is to be at the government's discretion (OGJ Online, Apr. 26, 2004).

Moody's said that it plans to continue monitoring Petro-Canada's leverage "given the high likelihood that more transactions will take place over the near-to-medium term."