Merger and acquisition activity among US and Canadian oil and gas companies has once again gained momentum. These transactions are continuing to reshape the landscape of the Canadian oil and gas industry (OGJ, Feb. 26, 2001, p. 28).
Among the deals unveiled in recent weeks:
- Vintage Petroleum Inc., Tulsa, said it plans to acquire Genesis Exploration Ltd., Calgary, for $898 million (Can.), including debt.
- Calgary-based Enbridge Inc. and Midcoast Energy Resources Inc., Houston, late last month signed a definitive agreement to merge in a transaction valued at $600 million.
- Provident Energy Trust will acquire Calgary-based Maxx Petroleum Ltd. in a $133 million (Can.) deal involving cash, stock, and assumed debt.
- Baytex Energy Ltd., Calgary, announced plans to acquire Calgary-based OGY Petroleums Ltd. for $72 million (Can.) in a cash-stock deal that would increase Baytex's Alberta reserves.
- Petrobank Energy & Resources Ltd. agreed to acquire Calgary-based Sunoma Energy Corp.'s 97% share of Barrington Petroleum Ltd. for $40.8 million (Can.) plus a $13.1 million intercompany loan owed by Barrington to Sunoma.
- Roc Oil Co. Ltd., Sydney, has begun an unsolicited offer to acquire 40% of Gulfstream Resources Canada Ltd., Calgary, for $28.3 million (Can.).
- Auburn Energy Ltd. agreed to acquire the outstanding shares of Spirit Energy Ltd., a private Alberta corporation, for $3 million (Can.), said Auburn parent company Tusk Energy Inc., Calgary.
Other recent M&A transactions include:
- Pure Resources Inc., Midland, Tex., and Hallwood Energy Corp., Denver, signed a merger agreement under which a Pure subsidiary will acquire Hallwood for $268 million.
- Varco International Inc. signed a letter of intent to buy the oil field service business of ICO Inc., both of Houston, for $165 million in cash.
- Ocean Energy Inc., Houston, agreed to buy all oil and gas assets of EnSight Resources LLC, Shreveport, La., for $121 million.
- Landmark Graphics Corp., a unit of Halliburton Co., Dallas, agreed to acquire majority ownership of LMK Resources Ltd., Islamabad.
Vintage purchase
Both Vintage and Genesis boards have unanimously agreed to the tender offer worth $18.25 (Can.) for each Genesis share. The deal remains subject to shareholder approval.
Genesis agreed not to solicit or initiate discussions with any third party concerning a business combination, and Vintage has the right to match any competing offer.
The offer will be made through a wholly owned subsidiary of Vintage, which expects the transaction to be accretive to this year's earnings and cash flow.
S. Craig George, Vintage CEO, said, "The acquisition of Genesis builds upon our recent entry into Canada, through the acquisition of Cometra Energy (Canada) Ltd. last year, establishing western Canada as a significant core area."
Donald Sabo, Genesis chairman and senior vice-president, said the offer "recognizes full value for Genesis shareholders and provides price certainty and liquidity."
Genesis has operations concentrating on the Peace River arch, west central, and northeastern regions of Alberta.
Enbridge-Midcoast merger
Under its merger agreement, Enbridge will buy all of Midcoast Energy's common stock for $27/share-a premium over Midcoast's Mar. 15 closing price of $25.20-as well as assume $250 million of the firm's long-term debt.
While the transaction is subject to approval by Midcoast shareholders, it is expected to close by the end of the second quarter.
Enbridge said shareholders holding 12% of the Midcoast shares have agreed to vote for the transaction.
Enbridge operates a crude oil and NGL pipeline system in Canada and the US and has a growing involvement in gas transmission and midstream businesses.
Midcoast transports, gathers, processes, and markets natural gas and other petroleum products through more than 80 company-owned intrastate and interstate pipelines totaling 4,100 miles in 10 US states, Canada, and the Gulf of Mexico.
Enbridge and its US subsidiary, Lakehead Pipe Line Co. Inc.-itself the general partner of Lakehead Pipe Line Partners LP-have a strategy of utilizing the partnership as a vehicle to acquire energy transportation assets, including purchase of such assets from other Enbridge affiliates.
Enbridge said that, while no decisions have been reached, the Midcoast acquisition will expand the portfolio of assets available for possible transfer to the Lakehead partnership.
Patrick Daniel, Enbridge president and CEO, said, "The risk profile of Midcoast's business is similar to Enbridge, with limited exposure to natural gas or natural gas liquids commodity prices."
Daniel said Dan Tutcher, president and CEO of Midcoast, and his staff will be retained in Houston.
The acquisition will contribute earnings of $30 million (Can.)/year and earnings of 5¢ (Can.)/share in 2002, Enbridge said.
Provident-Maxx deal
Maxx, which put itself on the market 9 months ago because of declining stock values, has production of 8,700 boe/d, mainly in the Lloydminster heavy oil region on the Alberta-Saskatchewan border.
Both companies have properties in Lloydminster, southeastern Saskatchewan, and west-central Alberta. The deal will increase Provident's production to 13,500 boe/d.
The $7/share offer includes a maximum cash component of $36 million. The balance is in Provident units and $14 million in debt assumption.
Maxx Chairman Bruce Libin said that the merger will provide Maxx shareholders with a premium to current market value for shares. Provident, an energy trust formed earlier this year, was formerly Founders Energy Ltd.
Provident CEO Tom Buchanan said Maxx is a good fit geographically.
Baytex-OGY transaction
Colin Ogilvy, OGY president, said the Baytex offer would benefit OGY shareholders because Baytex is a larger company with a successful track record. The OGY board unanimously agreed to the tender.
Baytex said it would pay $2.90/share cash for each of OGY's 22.33 million outstanding shares, or 0.245 Baytex share for each OGY share to a maximum of 1.2 million Baytex shares. The offer is conditional upon Baytex acquiring at least 66.66% of the OGY shares.
The $72 million includes Baytex's assumption of $7 million worth of OGY debt. OGY agreed to pay a noncompletion fee of $3 million to Baytex under certain circumstances.
OGY has proved reserves of 1.8 million bbl of oil and NGL and 25 bcf of gas. Its average 2000 production was 946 b/d of oil and 11.7 MMcfd of gas. Current production is 900 b/d and 15 MMcfd.
OGY's operations are concentrated in east-central Alberta, adjacent to Baytex's core properties.
Petrobank-Sunoma sale
The sale of Barrington to Calgary-based Petrobank was arranged by Sunoma's receiver and manager, Pricewaterhouse- Coopers Inc., which has been working on a potential sale since October.
The sale is expected to be complete early this month, subject to regulatory and court approvals and undisclosed conditions.
The agreement contemplates that all current directors and officers of Barrington will resign or be terminated concurrent with closing. Nominees of Petrobank will assume those positions on closing.
Barrington also signed a detailed purchase and sale agreement for the disposition of its Cold Lake First Nations property (OGJ Online, Feb. 28, 2001).
In an unrelated transaction, Bonavista Petroleum Ltd. agreed to buy Petrobank's oil and gas properties in the Blood McGrath area of Alberta for $16.25 million (Can.).
Petrobank said the sale would be effective Feb. 1 and would close in May.
Petrobank said the Alberta properties to be sold "represent the majority of Petrobank's current production" and would boost cash available to the company by $80 million.
Petrobank launched a normal course issuer bid on Dec. 12 allowing for the purchase and cancellation of up to 1,719,097 of its common shares. The company has purchased 855,400 shares to date at an average price of $1.49/share.
Roc's Gulfstream bid
Roc claims the all-cash offer of $1.10 (Can.)/share is a 51% premium to the 10-day weighted average trading price of Gulfstream on the Toronto Stock Exchange. Roc said it will fund the offer from cash on hand.
Roc CEO John Doran said, "While this offer is unsolicited, it is intended to be friendly to Gulfstream shareholders. Roc is simply providing them with an opportunity to determine the future of their company. Based on the publicly available information on which our offer is based, there would seem to be compelling reasons for Gulfstream shareholders to consider and approve the entry of Roc as a major shareholder."
The offer will close May 8 and is subject to at least 40% of Gulfstream shares being tendered, the shareholder rights plan being waived, and there being no material change in the business of Gulfstream.
In 1999, Roc acquired another TSE-listed Canadian company, Morrison Middlefield Resources Ltd., for $160 million (Can.), including the assumption of debt.
Auburn-Spirit acquisition
Tusk, Auburn's parent company, said, "The board of directors of Spirit has unanimously approved the offer, has determined unanimously that the offer is fair to the Spirit shareholders, and has determined unanimously to recommend that Spirit shareholders accept the offer."
Spirit owns a 10% interest in 14 producing and shut-in gas wells on Saddle Lake First Nation lands; a 10% interest in 2 shut-in gas wells on the Whitefish Lake First Nation lands; and rights to participate, through Auburn, in joint venture arrangements with the Saddle Lake, Whitefish Lake, and Alexis First Nations.
Through the acquisition of Spirit, Tusk will increase its participation in the joint venture arrangements in these three areas by 25%.
Auburn and Spirit currently produce gas from 10 wells at Saddle Lake. Four additional gas wells at Saddle Lake will come on stream in the second quarter, boosting Spirit's production to 500 Mcfd from 280 Mcfd.
Pure-Hallwood merger
Boards of both Pure Resources and Hallwood have approved the deal. Details regarding the transaction will be disclosed in tender offer documents.
Pure will pay $12.50/share for Hallwood common and $10.84/share for preferred. Hallwood common closed at $9.03/share on Mar. 29, before the merger announcement.
Jack Hightower, Pure chairman, president, and CEO, said, "This acquisition will expand our core areas in the Permian and San Juan basins and in South Texas. We expect the transaction to be immediately accretive to earnings and cash flow per share" (see related story, p. 22).
Pure recently bought International Paper Co.'s producing properties and interests covering 6 million acres in the Southern Gulf Coast region for $261 million.
Hallwood's properties are mostly in the Permian basin, the San Juan basin, South Texas, and onshore South Louisiana.
Varco-ICO deal
ICO officials said they plan to use the proceeds from Varco's purchase to pay down all of the company's $118 million in public senior notes and to retire its $32.3 million in convertible exchangeable preferred stock. That would reduce the company's interest expense by $12.2 million/year and its preferred stock dividends by $2.2 million/year, leaving it "a 'pure play' petrochemicals processing company with a strong balance sheet," officials said.
"We're encouraged by anything that ICO would do to increase shareholder value, which has decreased 80% in the last 3 years," said Timothy Gollin, manager of Houston-based investment group Travis Street Partners LLC, which is currently engaged in both a purchase bid and a proxy battle with ICO's management for control of that company.
However, Gollin expressed doubt that federal regulators would approve the transaction. He said ICO and Varco together command 85% of certain oil field services markets.
ICO is a leading provider of inspection, reclamation, and corrosion control services for new and used tubular goods and sucker rods.
Varco's four main product lines are tubular services, including coatings and inspection; solids control products and services; and coiled tubing and wireline products, along with pipeline and other industrial services. The present company was formed last May when Tuboscope Inc. merged with the former Varco through a pooling of interests and took the Varco name.
In December, Travis Street Partners announced it had acquired more than 5% of ICO's common stock and offered to buy the company for about $64.4 million, or $2.85/share. That represented an 82% premium on the closing market price for ICO stock at the time, the partnership claimed.
The investment group has since increased its ICO stock holdings to 7.3% and increased its offer to a maximum $3.25/share, or $73.5 million, providing severance costs for the current management do not exceed $1 million. Travis Street Partners claimed the so-called "golden parachute" separation packages for six ICO executives total $10.7 million, or "more than 30 times fiscal year 2000 earnings." Among those executives, they said, are ICO Chairman Asher "Al" O. Pacholder; his wife, Sylvia A. Pacholder; his daughter, Robin E. Pacholder; and his son-in-law, David Gerst.
ICO officials rejected that and subsequent offers-both higher and lower-by the investment group, but subsequently retained Bear, Sterns & Co. Inc. as financial adviser in a move that resulted in a competitive sales process for its oil field services business.
In January, Travis Street Partners initiated a proxy fight to elect its three candidates to ICO's board of directors at the annual meeting.
Since then, the two sides have exchanged verbal barbs, with ICO executives accusing the investor group of attempting to undermine the company's true value to buy it at bargain prices or else turn a profit on its stock holdings if a third party comes in as a "white knight" with a higher offer.
In announcing the proposed sale to Varco, ICO directors also postponed the annual meeting of its shareholders until Apr. 17 to provide shareholders sufficient time to evaluate the proposed sale under the nonbinding letter of intent.
Ocean-EnSight
The EnSight properties being acquired by Ocean Energy are primarily in East Texas and northern Louisiana, with total proved reserves estimated at 104 bcfe. Some 88% of the reserves is gas, with production of 23 MMcfed. The deal is expected to close by Apr. 20, with an effective date of Jan. 1, 2001.
"These assets are ideally situated in and around existing Ocean Energy-operated properties and complement our strong position in East Texas and North Louisiana," said John D. Schiller, executive vice-president of operations.
"We have identified a significant number of opportunities that will enhance our project inventory and create operational synergies that will benefit our cost structure in this area," he said.
Landmark-LMK purchase
Landmark said its acquisition of LMK, a consulting and information technology company, will expand the reach of its technology management solutions and add distribution channels in Pakistan, North Africa, and the Middle East.
Landmark provides exploration and production software.
LMK has 200 employees, based primarily in Islamabad and Dubai.
"Landmark sees tremendous growth in the demand for integrated technology and services in the part of the world now being served by LMK Resources," said John Gibson, president and CEO of Landmark Graphics. "By acquiring a majority interest in this new business, we can utilize their technical talent on Landmark projects in that area of the world, and at the same time, ensure the continued growth and focus of this important distribution and services channel."
Atif Khan, the president and CEO of LMK Resources, said, "Our relationship with Landmark Graphics has been mutually beneficial for both companies over the past 5 years. We believe that by joining with Landmark more closely, we can deliver an even wider range of technology, service, and support solutions in designated market areas."