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NFG's Seneca Enlarges E&P Presence with Tri Link Purchase

NFG's Seneca Enlarges E&P Presence with Tri Link Purchase

Seneca Resources Corp., the exploration and production arm of National Fuel Gas (NFG), announced last week that it will buy Tri Link Resources for C$340 million including debt. The parties hope to conclude the deal by June 15.

This offer, which marks Seneca's foray into Canada, represents a premium of 40% over the weighted average closing price of Tri Link common shares over the 20 previous trading days before the deal was announced last Tuesday, NFG said. This acquisition will build Seneca's total reserves base to nearly 1 Tcfe. The company also anticipates its production for fiscal 2001 will increase to over 100 Bcfe.

Tri Link Resources is a Calgary, AB-based exploration and production company producing approximately 11,500 boe/d last quarter. Tri Link also controls nearly three million undeveloped acres in Alberta, Saskatchewan and Manitoba. A significant portion of this acreage has been surveyed with proprietary 2-D and 3-D seismic and the data is now being evaluated for development of recent discoveries and further exploration potential.

Ron Barone, an analyst with PaineWebber, approved of the deal and raised his estimates for NFG's fiscal 2000 earnings per share (EPS) from $3.50 to $3.60. Fiscal 2001 EPS was also raised from $3.70 to $3.85. He said it is a win-win situation, with NFG expanding its E&P footprint in an accretive manner, and Tri Link receiving a solid premium for its shares. "When considering only proved reserves, it appears Seneca paid roughly $1.16/Mcfe... Despite paying what appears to be full value, the accretive terms of the deal should fortify Seneca's position as the key driver of growth at NFG," Barone said.

"The Tri Link acquisition will provide us a Canadian base to continue to grow Seneca's North American reserves," Said Bernard Kennedy, CEO of National Fuel Gas. "Canada holds significant opportunities to find and produce hydrocarbons to help supply our North American energy demands."

Like many other producers, Seneca has recently experienced a financial windfall. In its second quarter earnings report, issued earlier this month, the company said it earned a net income of $7.9 million, up from $100,000 for the same quarter a year ago. Production for the quarter was nearly a record, NFG said, at 16.5 Bcfe. It drills mainly in the Gulf of Mexico and onshore Texas and California.

"The purchase now gives us access to another energy-wealthy area," said Julie Coppola, an NFG spokeswoman. "Right now, Tri Link is more of an oil play, but we see very good natural gas opportunities going forward."

NFG said the Tri Link acquisition will be immediately accretive to its earnings. At current commodity prices, and an effective date of June 1, Tri Link will provide an additional $0.09/share in fiscal 2000, assuming the entire acquisition is financed with debt.

The offer is subject to regulatory approvals and the tendering of a minimum of 67% of the common shares to Seneca. Tri Link officers, representing approximately 7.5% of the fully diluted shares, have agreed to tender their shares according to the lock up agreement. Tri Link has also agreed to pay a C$6.3 million non-completion fee to Seneca under certain circumstances.

John Norris

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