Talisman's Petromet Deal Ups Alberta Gas Reserves
Talisman Energy Inc. is poised to become the dominant player in the growing core area of gas-rich Alberta after it set up a friendly agreement last week to purchase cross-town Calgary neighbor Petromet Resources Ltd. for C$806 million in cash and assumed debt. If the deal closes as expected, Talisman would add 72 MMcfe/d to its production base this year and 144 MMcfe/d in 2002.
In its cash offer, Talisman agreed to pay C$13.20 a share, a 26% premium over Petromet's close on April 9. Talisman also will acquire C$75 million of Petromet's debt. Although the cost of the properties is considered high, Talisman said, "it is justified by the current forward strip on gas prices, transaction synergies and exploration potential."
Petromet's assets, which include 291 Bcf of proved natural gas reserves and 7 MMbbls of oil and liquids, will add significantly to Talisman's growing west Edson, AB core area. Along with its proven assets, Petromet holds the rights to more than 400,000 net acres of mostly unexplored land west of Edson, with 230 identified drilling locations. More than 90% of its assets are concentrated in two properties at Bigstone and Wild River, and its average working interest in its production is 85%.
With the acquisition, Talisman's Canadian gas production is expected to average more than 850 MMcf/d this year, a 13% hike, and then climb to approximately 975 MMcf/d in 2002.
"This is a good marriage of assets, infrastructure and upside potential in Canada," said Talisman CEO Jim Buckee. "We have been looking for deals where we could add value for Talisman shareholders, and we believe Petromet is one such deal." Buckee said Talisman would consolidate its operations with Petromet's assets into a partnership when the acquisition is completed. "Petromet's assets tie nicely into our rapidly growing west Edson region."
The move, which was unanimously approved by both Talisman's and Petromet's boards of directors, also was given a thumbs up by analysts, who noted the acquisition would strengthen Talisman's growing Canadian gas base.
Lehman Brothers Inc. reiterated its 1-Strong Buy rating on Talisman last Wednesday, noting that the geology of Petromet's assets are "multi-zoned, shallow gas plays, providing numerous drilling opportunities." Before announcing the acquisition, Talisman had already evaluated almost half of the 230 drilling locations proposed by Petromet, analysts said.
"The new properties' close proximity to Talisman's Central Foothills Gas Gathering System and additional infrastructure should allow for accelerated development of the new asset base and higher operating efficiencies," Lehman Bros. noted in a research note. "We forecast Talisman's production to grow 7% this year to 2.6 Bcfe/d, or 440 Mboe/d. The Petromet deal is expected to increase total production by another 3% to 2.7 Bcfe/d or 451 Mboe/d."
Talisman, which also operates in the North Sea, Indonesia and Sudan, made its first major entry into the Edson area last year when it acquired the Central Foothills Gas Gathering System. The acquisition gave it control of the principal sour gas infrastructure in the region, and it also ties into the Talisman-operated Edson gas plant. At the time of the purchase, Talisman identified up to 6 Tcf of recoverable reserves in the region. It also holds several large land blocks near Findlay, AB, and has acquired interests in Benson Petroleum, also in Alberta.
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