The trend of Canadian producer acquisitions by U.S. companiescontinued with the announcement that Devon Energy Corp. agreed toacquire Canada’s Northstar Energy Corp. and create an evenlybalanced 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, saidNorthstar’s been on the acquisition radar for a while. “Northstarhas been showing up on most of the investment analysts lists as alikely candidate for takeover, and they themselves had taken overMorrison Petroleum in the prior year.” Morrison was mainly an oilproducer. “I think the general perception was they were having somedigestion challenges with those assets and their stock price becamedepressed and that’s what made them a takeover target.” Alsohelping matters is the weak Canadian dollar, the relativeimmaturity of Canadian gas and oil basins compared to those in theUnited States and the likelihood Canadian gas prices will continueto increase as access to U.S. markets grows.

The combination of Devon and Northstar would have total reservesof about 1.2 Tcf of gas and 117 million barrels of oil. Equitymarket capitalization would be near $2 billion, and both US andCanadian stock exchange listings are expected. The combined companywould rank in the top 15 of all US-based independent producers interms of market capitalization and total proved reserves. In termsof US-only production, it would rank among the top 20 publicindependents. In Canada, the combined company would be a first tierproducer and rank among the top 20 in Canada-only oil and gasproduction.

Northstar’s properties are concentrated in Alberta and thenortheastern Foothills region of British Columbia. The company hastotal proved reserves of about 550 Bcf of gas and 36 millionbarrels of oil and gas liquids. The company also has probablereserves of about 11 million barrels of oil and 200 Bcf of gas. Ithas undeveloped leasehold covering 1.6 million acres. Devonestimates Northstar’s assets, not including proved oil and gasreserves, to be worth about $200 million.

Devon has proved reserves of about 616 Bcf of gas and 81 millionbarrels of oil and gas liquids and has probable reserves of 5.7million barrels of oil and 165 Bcf of gas. It has undevelopedleasehold covering some 583 thousand acres. Like Northstar, Devonowns 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 untappedfinancing capacity. John A. Hagg, current CEO of Northstar and itscurrent executive staff would lead the combined company’s Canadianoperations. J. Larry Nichols, current CEO of Devon, would serve aspresident and CEO of the combined company. The merger, which hasbeen approved by the boards of both companies, is expected to beaccounted for as a pooling of interests. Northstar shareholderswould receive 0.227 fractional Devon common equivalent shares foreach existing Northstar share. Devon would issue 15.4 millioncommon equivalent shares. Devon also would assume existingNorthstar debt of $312 million and certain other obligations.

Joe Fisher, Houston

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