PanCanadian Says Montana Power Purchase 'Beautiful Fit'
To extend what it sees as dominance in Canada's natural gas
market and to boost its production by 10%, PanCanadian Petroleum
Ltd. last week agreed to purchase Montana Power Co. for $475
million. The properties will extend PanCanadian's existing shallow
gas properties in southern Alberta into northern Montana, adding 94
MMcf/d and 3,800 barrels of crude oil and natural gas liquids.
The acquisition will give PanCanadian properties in Alberta,
Montana, Colorado, Oklahoma and Wyoming, along with three gas
pipelines linking Alberta and Saskatchewan to Montana.
"We have a focus on natural gas," said CEO David Tuer during a
conference call last week in Calgary. "This is clearly our future.
It is difficult to put any negative on this (acquisition) and it's
likely to stay valuable for the foreseeable future."
Montana Power's production is more than 90% natural gas and
associated liquids, and the acquisition substantially extends
PanCanadian's land and infrastructure, allowing it to use its
technology and operating strategies in a region that extends along
the Alberta-Montana border.
"The Montana Power assets clearly fit our strengths and allow us
to employ our expertise in developing long life reserves of shallow
and medium depth natural gas," Tuer said. "The potential in these
assets is significant, and over the next few years, we will add
substantially to PanCanadian's daily natural gas production."
Tuer said that the acquisition extends the company's dominance
in shallow gas, and called Montana Power a "beautiful fit with
PanCanadian's gas strategy, land position and technological
PanCanadian's newest acquisition adds reserves of 550 Bcf and 20
MM barrels of oil and natural gas liquids on a proven and one-half
probable basis, said officials. Production and reserves account for
$520 million of the purchase price, while the remainder is made up
of $135 million for the midstream and marketing assets, $40 million
for the undeveloped land (about 600,000 acres), and $7 million of
Tuer said the company was paying 77 cents/Mcfe of proven and
on-half probable reserves. The price for daily flowing production,
based on a 6:1 ration of gas to BOE is $4,450/Mcfe, or $26,710/BOE.
Along with the added Alberta and Montana properties, PanCanadian
also picks up some land in Colorado's Denver Basin, which now
produces about 31 MMcf/d. Other land that is part of the sale is
located in the Anadarko Basin of Oklahoma and the Green River Basin
Three natural gas pipelines that cross from Montana into Alberta
and Saskatchewan also are included. The pipelines allow direct
access to the U.S. markets for southern Alberta and Saskatchewan
gas, and serve more than 1.2 million net acres of developed and
undeveloped lands, with most of it concentrated in parcels that
span the Canada-Montana border.
Midstream assets that go to PanCanadian include a natural gas
marketing company in Butte, MT, along with a deep cut gas
processing and fractionation plant in Colorado. The Fort Lupton, CO
plant processes more than 60 MMcf/d and 5,500 barrels of natural
gas liquids and condensate.
In all, the total developed and undeveloped land is roughly 1.2
million net acres, or 1.7 million gross acres, said PanCanadian.
"Montana Power fit us like a glove," Tuer said during the
conference call. He said the acquisition will help PanCanadian to
remain "best of class" for what it does. "It makes our sandbox that
The acquisition, which is expected to close around Oct. 31, will
increase both PanCanadian's net income and cash flow this year and
in subsequent years, said Tuer. The added gas production will
immediately increase the company's natural gas, as a percentage of
total production, to 58%, based on a 6:1 ratio of gas to BOE.
About 25% of the natural gas being acquired from Montana Power
now is being sold to Montana Power utilities for $1.50 to $1.60
MMcf until July 2002, and because it's priced below the open market
officials think future earnings will be good.
"As that contract expires, there's a lot of potential from the
price in this transaction," Tuer said.
And what's to become of Montana Power? Earlier this year, the
88-year-old company, headquartered in Butte, announced it would
divest itself of four of its traditional energy businesses. By
selling its coal production, natural gas transmission and
distribution, independent power production and oil and gas
exploration and production businesses, it plans to reinvest the
proceeds in Touch America, a fiber optics and telecommunications
business, which is also a subsidiary of Montana Power.
"The process to determine the buyer for our oil and gas business
was robust, and we are delighted with the result," said Montana
Power CEO Robert P. Gannon. "We believe there will be a meshing of
business strategies and that cultural synergy's exist between the
purchased companies and Pan Canadian." He noted that Montana Power
has had a Canadian presence for almost 50 years.
PanCanadian purchased the entire oil and gas division, which now
employs about 170. PanCanadian plans to maintain a regional office
in Butte, invest in the acquired properties and grow daily gas
production. There was no word on whether any jobs would be lost.
Carolyn Davis, Houston