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Devon Energy Plans to Acquire Canada's Northstar

Devon Energy Plans to Acquire Canada's Northstar

The trend of Canadian producer acquisitions by U.S. companies continued with the announcement that Devon Energy Corp. agreed to acquire Canada's Northstar Energy Corp. and create an evenly balanced oil and gas producer with 53% of its reserves in the U.S. and 47% in Canada.

Paul H. Ziff, president of consultant Ziff Energy Group, said Northstar's been on the acquisition radar for a while. "Northstar has been showing up on most of the investment analysts lists as a likely candidate for takeover, and they themselves had taken over Morrison Petroleum in the prior year." Morrison was mainly an oil producer. "I think the general perception was they were having some digestion challenges with those assets and their stock price became depressed and that's what made them a takeover target." Also helping matters is the weak Canadian dollar, the relative immaturity of Canadian gas and oil basins compared to those in the United States and the likelihood Canadian gas prices will continue to increase as access to U.S. markets grows.

The combination of Devon and Northstar would have total reserves of about 1.2 Tcf of gas and 117 million barrels of oil. Equity market capitalization would be near $2 billion, and both US and Canadian stock exchange listings are expected. The combined company would rank in the top 15 of all US-based independent producers in terms of market capitalization and total proved reserves. In terms of US-only production, it would rank among the top 20 public independents. In Canada, the combined company would be a first tier producer and rank among the top 20 in Canada-only oil and gas production.

Northstar's properties are concentrated in Alberta and the northeastern Foothills region of British Columbia. The company has total proved reserves of about 550 Bcf of gas and 36 million barrels of oil and gas liquids. The company also has probable reserves of about 11 million barrels of oil and 200 Bcf of gas. It has undeveloped leasehold covering 1.6 million acres. Devon estimates Northstar's assets, not including proved oil and gas reserves, to be worth about $200 million.

Devon has proved reserves of about 616 Bcf of gas and 81 million barrels of oil and gas liquids and has probable reserves of 5.7 million barrels of oil and 165 Bcf of gas. It has undeveloped leasehold covering some 583 thousand acres. Like Northstar, Devon owns interests in several processing facilities and pipelines.

The new company would have about $70 million in working capital, $312 million in debt and an estimated $500 million in untapped financing capacity. John A. Hagg, current CEO of Northstar and its current executive staff would lead the combined company's Canadian operations. J. Larry Nichols, current CEO of Devon, would serve as president and CEO of the combined company. The merger, which has been approved by the boards of both companies, is expected to be accounted for as a pooling of interests. Northstar shareholders would receive 0.227 fractional Devon common equivalent shares for each existing Northstar share. Devon would issue 15.4 million common equivalent shares. Devon also would assume existing Northstar debt of $312 million and certain other obligations.

Joe Fisher, Houston

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