Canadian 88 Pulls Up For-Sale Sign
Nine months after it began looking for a buyer, Canadian 88 Energy Corp. has taken itself off the selling block, announcing last Tuesday that financial and operating results have improved enough to succeed independently as a mid-sized natural gas producer. Company officials also acknowledged that in their opinion, potential buyers weren't prepared to pay enough for the Calgary-based company's increased gas production potential.
CEO Joseph Pritchett III said the company had accomplished the "essential steps" to reduce its financial risk and now will focus on assets and prospects. One of the steps was made in February, when it sold some of its non-producing Alberta assets to Hunt Oil Co. of Canada (see NGI, March 5). Canadian 88 said then it would use the C$176 million (US$115 million) to pay down a C$195 million debt, which it has done. With a smaller debt base and more focused assets, company officials say they don't need a buyer.
"We had serious interest from a number of prominent industry players," Pritchett said during a conference call Tuesday. However, he said that while "they were impressed with the quality of the data we presented and our assets, in the final analysis they were not willing to pay for the upside that I and the Canadian 88 board believe exists in our exploration inventory in western Canada and offshore Nova Scotia."
Pritchett said, "Canadian 88 has been returned to profitability, cash flow has improved dramatically, debt has been reduced from C$225 million at year end 1999 to C$29 million today, and we have increased our focus on large working interests in significant gas fields, most with strategic infrastructure."
That focus, he said, will include production optimization, low risk drilling, high impact exploration and strategic asset purchases mostly around core operating areas. Operating and financial targets also are being reviewed along with the organizational structure to meet the objectives.
For 2001, Canadian 88's capital expenditures are expected to total C$100 million, with 70% targeted for exploitation and the rest for exploration. So far this year Canadian 88 has participated in 25 wells, with a success rate of 80%, and now has seven active drilling rigs. Its first quarter production was 11,217 boe/d, and it currently is producing at 11,400 boe/d. In the next two weeks, it said it would increase production to 12,000 boe/d after putting production online at Medallion and regaining Cheddarville shut-in volume.
"Production this year is expected to grow about 23% to 13,800 boe/d exiting the fourth quarter, excluding any additions from exploration or acquisition activities," said Pritchett. "Cash flow for 2001 is estimated to triple to approximately $100 million, assuming gas prices of C$5.72/Mcf for the third quarter and C$6.21/Mcf for the fourth quarter."
Duke Energy Corp., which bought into the company last year and now owns about 20% of the shares, said it supported Canadian 88's decision. But Canadian 88's fight for independence still is far from over.
Since April, Canadian 88 has been locked in a hostile takeover bid by rival Canadian Superior Energy Inc., which was started by Canadian 88 founder Greg Noval. Noval resigned last year when Duke bought into the company (see NGI, May 14). Noval's Canadian Superior is about a tenth of the size of Canadian 88, and all attempts to take over Canadian 88 so far have been rebuffed.
Canadian Superior is offering 2.75 of its shares for each Canadian 88 share, a deal that Canadian Superior said is worth C$4.95 a share, or C$700 million. To complicate the picture, Noval remains on the Canadian 88 board. Pritchett revealed Tuesday that Canadian 88 is attempting to change that, taking Noval to court in May to have him removed as a director after the rest of the board voted to oust him following his company's hostile takeover attempt.
Pritchett, who informed shareholders by letter last week, said that on May 31 the court granted an interim order prohibiting Noval from participating in Canadian 88 board meetings. Shareholders could vote Noval off the board permanently at the company's annual meeting June 20, said Pritchett. At another special shareholder meeting now scheduled for July 24, Pritchett said shareholders could vote on the Canadian Superior offer (see NGI, June 11).
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