El Paso Snags Canadian Independent Velvet Exploration
El Paso Corp. gained a foothold in western Canada last week with the purchase of Canadian independent Velvet Exploration Ltd. for C$8.15/share or about US$280 million, including the assumption of US$52 million in debt. Velvet holds about 172 Bcf of net proved reserves (59% gas) in the Western Canadian Sedimentary Basin and 403,000 acres of undeveloped land. El Paso said the total acquisition cost per proved thousand cubic feet equivalent (Mcfe) is US$1.16, after allocating value to Velvet's land, seismic position and tax pools.
"The acquisition of Velvet provides El Paso with a strong platform to build a significant production business in western Canada," said Rod Erskine, president of El Paso Production Co. "Velvet has a large acreage position which can be effectively developed using our proven technical skills. Further, we are very enthusiastic about the prospect of adding Velvet's high quality employee group to our team."
The transaction has been approved by both companies' boards of directors and will be conditioned upon at least 66.6% of Velvet's shares being tendered under the offer, regulatory approval and other customary conditions. Velvet has agreed that it will not solicit competing offers and will pay a $10 million non-completion fee in certain circumstances.
Velvet has average daily net production of 54 MMcfe/d and has 65 employees. El Paso expects the transaction to be immediately accretive to 2001 and 2002 earnings and cash flow per share. The acquisition will not materially affect net capital spending for El Paso Production in 2001, the company said.
All of Velvet's senior management and directors have agreed to tender and not withdraw their shares under the offer. El Paso intends to mail the offer to Velvet shareholders on or before June 25 with a closing date expected in late July.
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