Seneca Resources Corp., the exploration and production arm ofNational Fuel Gas (NFG), announced last week that it will buy TriLink Resources for C$340 million including debt. The parties hopeto conclude the deal by June 15.

This offer, which marks Seneca’s foray into Canada, represents apremium of 40% over the weighted average closing price of Tri Linkcommon shares over the 20 previous trading days before the deal wasannounced last Tuesday, NFG said. This acquisition will buildSeneca’s total reserves base to nearly 1 Tcfe. The company alsoanticipates its production for fiscal 2001 will increase to over100 Bcfe.

Tri Link Resources is a Calgary, AB-based exploration andproduction company producing approximately 11,500 boe/d lastquarter. Tri Link also controls nearly three million undevelopedacres in Alberta, Saskatchewan and Manitoba. A significant portionof this acreage has been surveyed with proprietary 2-D and 3-Dseismic and the data is now being evaluated for development ofrecent discoveries and further exploration potential.

Ron Barone, an analyst with PaineWebber, approved of the dealand raised his estimates for NFG’s fiscal 2000 earnings per share(EPS) from $3.50 to $3.60. Fiscal 2001 EPS was also raised from$3.70 to $3.85. He said it is a win-win situation, with NFGexpanding its E&P footprint in an accretive manner, and TriLink receiving a solid premium for its shares. “When consideringonly proved reserves, it appears Seneca paid roughly $1.16/Mcfe…Despite paying what appears to be full value, the accretive termsof the deal should fortify Seneca’s position as the key driver ofgrowth at NFG,” Barone said.

“The Tri Link acquisition will provide us a Canadian base tocontinue to grow Seneca’s North American reserves,” Said BernardKennedy, CEO of National Fuel Gas. “Canada holds significantopportunities to find and produce hydrocarbons to help supply ourNorth American energy demands.”

Like many other producers, Seneca has recently experienced afinancial windfall. In its second quarter earnings report, issuedearlier this month, the company said it earned a net income of $7.9million, up from $100,000 for the same quarter a year ago.Production for the quarter was nearly a record, NFG said, at 16.5Bcfe. It drills mainly in the Gulf of Mexico and onshore Texas andCalifornia.

“The purchase now gives us access to another energy-wealthyarea,” said Julie Coppola, an NFG spokeswoman. “Right now, Tri Linkis more of an oil play, but we see very good natural gasopportunities going forward.”

NFG said the Tri Link acquisition will be immediately accretiveto its earnings. At current commodity prices, and an effective dateof June 1, Tri Link will provide an additional $0.09/share infiscal 2000, assuming the entire acquisition is financed with debt.

The offer is subject to regulatory approvals and the tenderingof a minimum of 67% of the common shares to Seneca. Tri Linkofficers, representing approximately 7.5% of the fully dilutedshares, have agreed to tender their shares according to the lock upagreement. Tri Link has also agreed to pay a C$6.3 millionnon-completion fee to Seneca under certain circumstances.

John Norris

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