Gulf Canada-Crestar tops Canadian M&A frenzy

Oct. 9, 2000
Canadian oil and gas companies again demand the company news spotlight, as firms continue to be active in mergers, acquisitions, and asset divestments.

Canadian oil and gas companies again demand the company news spotlight, as firms continue to be active in mergers, acquisitions, and asset divestments.

Gulf Canada Resources Ltd., Calgary, agreed to acquire Crestar Energy Inc., also of Calgary, in a stock transaction valued at $2.3 billion (Can.). 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.

Talisman Energy Inc., Calgary, acquired the Central Foothills gas gathering and the Columbia Minehead gas gathering systems from units of TransCanada PipeLines Ltd. (TCPL), also of Calgary.

TCPL has been offloading certain of its noncore assets (OGJ, Dec. 20, 1999, p. 32).

The company also plans to sell its 50% interest in the Express pipeline system and associated Marquest marketing entities to Alberta Energy Co. Ltd. (AEC), Calgary, for about $90 million (Can.).

Continental Energy Corp., Vancouver, BC, has purchased a 70% stake in British Virgin Islands-based GAT Bangkudulis Petroleum Co. Ltd. (GATB) and its Bangkudulis oil field development project in East Kalimantan, Indonesia. The seller is Dimensions West Energy Inc., also of Vancouver. That firm acquired its 70% shareholding of GATB in 1998.

Gulf, Crestar purchase

Gulf Canada's acquisition of Crestar raises its production by 59%, or 278,000 boe/d and adds 586 million bbl of proven liquids reserves to Gulf Canada's assets, a 36% increase. It also raises its proven gas reserves by 45%, or 3.3 tcf, 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 add to its cash flow and earnings per share, said Richard P. Auchinleck, president and CEO of Gulf Canada. It also will help fund Gulf's expansion of its diversified assets, including the Syncrude Canada Ltd. joint venture, the Surmount oil sands project, and E&P 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 ot its ordinary shares plus $3.25 cash for each Crestar common share, representing a value of $29.75/share. Crestar shareholders will be entitled to receive either 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 Sept. 29.

With the improvement of Gulf Canada's balance sheet, Auchinleck said, the company will likely, for the short term, hold on to 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 medium-to-heavy gravity crudes could be put to use in the Petrovera assets. About 60% of Crestar's liquids production comes from its medium-gravity oil production. This production is lumped into the heavy oil category, but the crude is mostly high-teens-gravity oil from Alberta. Consequently, said Barry Jackson, Crestar president and CEO, 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 Ecuadorian acquisition marked Crestar's first overseas venture.

Gulf also is 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 Crestar's board and its financial advisors. Gulf's offer will be conditional on at least two thirds of Crestar's shares being tendered. Under certain conditions, Crestar's board 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 to shareholders.

Talisman's purchase

The two major gas gathering systems that Talisman acquired comprise over 300 km of pipeline. They connect the Western Canada Sedimentary Basin and major sour gas processing facilities, including the Talisman-operated Edson gas plant.

"Our goal is to increase and consolidate our participation in the North American gas business," said Jim Buckee, Talisman president and CEO. "It's important both in terms of giving us transportation and processing options for our Foothills and Greater Edson area gas production and [in] ensuring the long-term future of our Edson plant, one of our largest gas plants in Western Canada. It will also give us enhanced access to a new core gas exploration area."

The transaction closed Sept. 15.

TCPL's continued divestment

AEC has agreed to acquire from TCPL the 50% interest in the Express Pipeline and the Platte Pipeline-known together as the Express Pipeline system-that it does not already own.

AEC will also acquire TCPL's 50% interest in two partnerships that were formed to act as shippers on these pipelines. The purchase price is about $90 million (Can.) plus the assumption of $295 million in debt.

The agreement provides an option for AEC to satisfy the $90 million price by issuing common shares.

TCPL had been planning to sell the Express system, which has capacity to transport 172,000 b/d of oil from Alberta to Wyoming, for some time. The divestiture is part of a company restructuring that is expected to net $3 billion.

The sale is expected to close in early November and is subject to regulatory approval.

Continental purchase

Continental Energy's purchase of Dimensions West Energy calls for the firm to pay Dimensions West a nonrefundable $15,000 (US) cash deposit and allow Dimensions West to recover its entire $3.6 million (US) investment from actual crude oil production proceeds derived from Bangkudulis field when they become available.

Continental also will assume all of the seller's funding responsibility-$4.4 million (US)-with regard to GATB, its technical assistance contract with Indonesian state oil company Pertamina, and the field development project, retroactive to June 1, 2000.

Continental also will provide Dimensions West a 10% net profit interest in Continental's 70% share of Bangkudulis field production profits for the life of the field.

Bangkudulis field lies mostly onshore Bangkudulis Island in the Sesayap River estuary and Tarakan basin of East Kalimantan. Continental said a report by a third-party engineering company estimates that the Bangkudulis field contains proved, developed nonproducing oil reserves of 2.8 million bbl plus probable reserves of 8.5 million bbl.

An existing production well on the Bangkudulis field is shut in. During a 4-year period ending in 1989, that well flowed 540,000 bbl of sweet 41° gravity crude.

To fully develop the field, Continental said, it could drill up to 18 new production wells. Continental's estimate of the field development cost is $28 million (US).

Dimension West has already invested $3.6 million (US) in Bangkudulis field, which it used to construct four drillsites, access roads, and a 7-in. pipeline and to install production and logistics infrastructure.

The Bangkudulis technical assistance contract covers an area of 18.6 sq km over Bangkudulis field, an oil and gas field discovered in 1980 by ARCO. GATB owns a 100% interest in the TAC and the underlying field development project, and it acts as field development operator.