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Canadian Superior Goes After Canada Southern's Shares

June 12, 2006
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Canadian Superior Energy Inc. last week upped the ante for shares of Canada Southern Petroleum, a small Canadian independent with production in British Columbia, the Yukon and Alberta and a relatively large acreage position in the Canadian Arctic Islands. Petro-Canada already has a hostile takeover offer on the table but Canadian Superior raised that by 13%. Canada Southern's board, meanwhile, has urged its shareholders to take no action on the latest offer.

"In response to the May 15th unsolicited offer by Petro-Canada, Canada Southern initiated a process to solicit potential alternative transactions that would provide greater value to Canada Southern shareholders," said Canada Southern Chairman Richard McGinity. "That process is active and ongoing. Canada Southern will evaluate the unsolicited offer announced today by Canadian Superior once formal offer documents have been filed and in the context of the process we have under way. We will make a recommendation to our shareholders in due course."

Canada Southern's board flatly rejected Petro-Canada's US$113 million (US$7.50 or C$8.26/share) offer, saying it undervalued the company's assets, particularly its Arctic Islands holdings, and came at a time when its shares were trading at a low point (see NGI, June 5). Nevertheless, Petro-Canada said it would stick with its initial offer.

Canadian Superior is offering about US$8.48, or C$9.35/share, including 2.75 of its shares and C$2.50 in cash for each outstanding share of Canada Southern.

"I believe the Canadian Superior offer provides Canada Southern shareholders tremendous immediate opportunity through participation in the development of Canadian Superior's Trinidad 'Intrepid' Block 5(c) where Canadian Superior will be drilling later this year, and both Canada Southern and Canadian Superior shareholders will have long term upside through Canada Southern's interests in northern Canada," said Canadian Superior CEO Greg Noval.

Calgary-based Canada Southern has about 1,100 boe/d of gas production and about 39,000 net acres in the Canadian Arctic Islands. The company currently has 13.7 Bcfe of proved and probable reserves but it estimates that its potential reserves in the Canadian Arctic Islands could bring that total to as much as 927 Bcfe, an amount disputed by Petro-Canada.

Meanwhile, Canadian Superior holds a large land position in Trinidad and Tobago next to some prolific natural gas wells. Canadian Superior said it will be drilling two back-to-back wells on its Intrepid Block 5(c) in the fourth quarter. Wells offsetting the Intrepid Block 5(c) are currently producing over 400 MMcf/d of natural gas and British Petroleum recently started producing 800 MMcf/d in the area from four wells. The company also noted that it has a large acreage position offshore Nova Scotia and holds acreage in the heart of Alberta's coalbed methane play.

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