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
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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