Canada Properties Hot Among Canadians, Americans, Too
Robust acquisition of Canadian properties continued last week
with the announcement that Canadian producer Renaissance Energy
will acquire fellow Canadian Pinnacle Resources Ltd. in a deal
Renaissance CEO Clayton Woitas said "expands and strengthens our
existing holdings and offers improved operating efficiencies.
"We have indicated for some time that we would pursue
appropriate acquisitions that reflect our counter-cyclical strategy
and will create value for shareholders. We have maintained an
ongoing review of prospective candidates, including Pinnacle. That
preparation enabled us to respond quickly to this unique
opportunity. We are the obvious buyer given the similarity of
assets, operations and culture.
"We are acquiring a high quality portfolio that we know well;
one that complements our own business; is located where we are or
want to be; and can generate value for our shareholders."
Pinnacle shareholders will receive 0.66 of a Renaissance share
for each Pinnacle share. The exchange ratio represents an offer
price of $16.76 per Pinnacle share, which is a 28% premium based
upon the closing prices of the companies' shares on the Toronto
Stock Exchange June 5. Renaissance will assume Pinnacle's
outstanding debt of about $380 million resulting in a total
transaction value of $1.06 billion if all Pinnacle's shares are
tendered. The offer for all common shares has the approval of the
boards of both companies.
Pinnacle CEO Matthew Brister said, "Renaissance is a proven
performer with a strong focus on growth, profitability and
shareholder value. We are delighted that our shareholders and
employees will be able to participate in this unique opportunity
going forward." The deal's valuation works out to about $6.79 per
barrel of oil equivalent (Boe) of proven reserves as of Dec. 31.
"We see tremendous upside in three key areas of Pinnacle's
asset base," Woitas said. He pointed to overlapping oil-related
assets in southwest Saskatchewan and "unrecognized natural gas
potential in this region. Second, we see great opportunities in
Pinnacle's Ansell and McLeod areas, which have been the focus of
Pinnacle's future natural gas growth." The two companies also have
adjacent operations in the Athabasca North region "where continued
growth in natural gas reserves and production will be pursued and
additional operating efficiencies are expected."
Earlier this month, Marathon Oil agreed to acquire Tarragon Oil
and Gas Ltd. of Calgary, marking the company's return to the
Canadian E&P sector and illustrating how companies are
capitalizing on weakened Canadian equity values.
"It's part of a trend," said Verne Johnson, president of Ziff
Energy Group (See NGI June 8). He said the market hasn't been as
attractive for Canadian E&P opportunities since probably 1991.
"It's a combination of the price of oil, particularly, and the
stock market, which has been for the most part very hard on
Canadian E&P companies in the last six or eight months. Part of
the stock market behavior is related to the price of oil, but it
certainly predates the price of oil sliding as much as it has. It
started last fall, and a big part of that was the Asian meltdown.
Oil and gas stocks have never quite come out of that correction as
other sectors of the market have, so the Canadian E&P companies
have suffered an extended and significant correction and it's been
compounded by the price of oil."
Other recent Canadian deals are Dominion Energy's April purchase
of Archer Resources Ltd., a publicly traded gas exploration and
production company headquartered in Calgary; and Union Pacific
Resources Group's March acquisition of Norcen Energy Resources.
Peter Linder, senior oil and gas analyst with CIBC Wood Gundy in
Calgary, said the spate of Canadian acquisitions is a healthy
process. "I'd like to see more Americans coming in here. I think
they're very welcome, and I think we'll be a lot better industry
going forward with this process."
He said he expects the trend to continue through this year and
perhaps longer. "From my perspective there's really no difference
buying a Canadian producer than a U.S. producer. The advantage is
that the Canadian producers' assets are much cheaper than the
equivalent assets of the U.S. producer, plus the added advantage of
a very low Canadian dollar value.
"We have a lot of Canadian producers - I'm sure there are a lot
of U.S. producers as well - that have got themselves into trouble
from the combination of buying properties in 1996 and 1997 at
inflated prices and have reached debt levels that are very
unhealthy and are unable to raise money from the equity market. And
basically they've hit the wall. There's no future. They can't
proceed. They're stuck."
Joe Fisher, Houston