AEC Snags McMurry Oil, Gets 35% Stake in Jonah Field
Alberta Energy Co. Ltd. became more U.S. than Canadian producer
last week by grabbing a major foothold in the Rocky Mountain
region. The company is buying all the common shares of McMurry Oil,
which owns 1.2 Tcf of gas reserves and significant exploration
acreage in the Jonah Field in the Green River Basin in southwestern
Wyoming. It also is purchasing the 245-mile Jonah Field gas
gathering system, which currently transports 320 MMcf/d of gas and
is primed for an expansion to 440 MMcf/d. The transactions are
valued at a total of C$1.15 billion.
"We have added a substantial new growth platform in the U.S.
Rockies, something we have been looking to do for some time. It's
an area that we have been exploring in and of course now our
exploration programs will be expanded," said AEC CEO Gwyn Morgan.
"The geology is comparable to western Alberta and it is an area
that AEC can apply its core competency in deep, tight gas
exploration and development to add shareholder value. We think the
timing also is very good to become the fifth largest independent
gas producer in North America with the third largest gas reserves
base... There's no question in my mind that gas prices are going to
go much higher in North America."
AEC Oil & Gas (USA) Inc. bought the proven and probable
reserves for C$910 million cash. It will increase AEC's gas
reserves to 5.4 Tcf, the largest ownership position in Canada. AEC
paid C$0.74/Mcf for probable reserves, C$0.91/Mcfe for established
reserves and C$1.19/Mcfe for proven reserves.
"We are buying these assets at a competitive cost compared to
other recent transactions, but that is where the comparison ends,"
said Morgan. "Instead of short-life, high-decline assets where it's
a scramble just to stay even, which we've seen in so many of the
deals that have come along, Jonah has a 20-year reserve life and
sustainable production growth and upside potential.
"Instead of scattered unfocused assets, this is operated,
high-working interest production.. The netbacks are high and the
recycle ratio is three times, and we believe that both will rise
further as gas markets continue to tighten," he added. "We have
another growth platform to add as another step in our global
Net gas production from the Jonah properties currently is 140
MMcf/d, but is expected to grow to 180 MMcf/d in 2001 and 220
MMcf/d in 2002. The acquisitions are expected to bring AEC's gas
sales to 1,080 MMcf/d this year, an increase of 19% over 1999
levels. Its gas sales are expected to continue increasing in 2001
to 1,280 MMcf/d, another 19% jump. And about 58% of AEC's year 2000
total production base now will be North American gas.
In addition, AEC will acquire acreage on the play fairway of the
Pinedale Anticline, which is believed to have the exploration
potential for up to 1 Tcf. This brings AEC's net exploration
acreage in Wyoming up to 135,000 net acres.
"Based on our detailed review, these assets are the highest
quality gas assets currently available in North America," said
Morgan. AEC won the deal following a bidding process conducted by
privately owned McMurry, involving a few select companies. The
agreement has been approved by the McMurry board but is subject to
approval by shareholders. The acquisition is anticipated to take
effect June 1 subject to regulatory approval.
The Jonah field is situated near the Opal gas hub, facilitating
ready market access. AEC's midstream division now also has the main
transportation link to the hub through its purchase of a 92.5%
stake in the Green River Pipeline LLC, which owns the Jonah Gas
Gathering Co. It also has offered to acquire the remaining 7.5%.
The total cost of the pipeline transactions is C$240 million which
amounts to about five times pretax cash flow for the pipeline, AEC
said. The pipeline is expected to contribute approximately C$45
million of annual operating cash flow in 2001.
"Control and operatorship of the pipeline system ensures market
access for AEC gas and puts AEC in control of capacity growth,"
said Morgan. This pipeline system currently transports gas under
contracts with 14 producers in the region and is in the process of
AEC said most of the current employees of McMurry and the
pipeline companies will be offered employment with AEC Oil &
Gas (USA) Inc.
"This is a franchise quality asset which not only provides a
growth position in a world class field, but also a regional
operating platform to explore for more 'Jonahs' from our newly
established Denver-based business unit," Morgan added. He said the
acquisition is expected to provide both immediate and long-term
growth in AEC's cash flow and earnings per share. Based on current
Nymex gas prices, the acquisition is expected to be accretive to
cash flow by $0.45 per share for the remaining seven months in
2000, and $1 per share in 2001. It is expected to increase AEC's
earnings per share by $0.05 in 2000, and to contribute $0.20 to
earnings per share in 2001.