Canadian Hunter buys out gas supply contract

Canadian Hunter Exploration Ltd., Calgary, said it bought its way out of a prepaid natural gas supply purchase and sale contract it entered in 1991 so that it can take advantage of higher market rates for the gas. The Canadian company paid $103 million to get out of having to deliver 65 trillion btu of gas over the remaining 7 years of the contract.


Canadian Hunter Exploration Ltd., Calgary, said it bought its way out of a prepaid natural gas supply purchase and sale contract it entered in 1991 so that it can take advantage of higher market rates for the gas.

The Canadian company paid $103 million to get out of having to deliver 65 trillion btu of gas over the remaining 7 years of the contract. The company will now be able to sell 25 billion btu/day of gas at a more favorable rate, Canadian Hunter said.

A major independent producer is still obligated to deliver 10 billion btu/day to Canadian Hunter under terms similar to the original agreement. Canadian Hunter only has to pay for costs related to crown royalties, gathering, processing, and transportation of gas it received under the prepaid arrangement.

At the same time, Canadian Hunter plans to sell 19 billion btu/day of gas at $4.40/MMbtu on the forward market for a 5-year term in order to capture a favorable price spread starting Nov. 1.

The full cost of this gas supply obligation restructuring will be reflected in 2000 earnings and will impact cash flows and earning the next 7 years. Following the transaction, Canadian Hunter expects to have cash flow for 2000 and 2001 of 50�/share and 60�/share, respectively, and net income of -10�/share and 15�/share.

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