Calgary's Husky Oil, Renaissance Join Forces
In a deal that is being called the biggest in the Canadian
energy industry this year, two Calgary companies, Husky Oil Ltd.
and Renaissance Energy Ltd., agreed last week to merge into Husky
Energy, a move that will catapult the new company into the top tier
of Canada's publicly traded energy firms.
The total value of the deal is estimated at C$4.4 billion.
Poised to become Canada's second largest oil and natural gas
producer, Husky Energy also will hold the title of Canada's fourth
largest energy company overall after Imperial Oil Ltd., Shell
Canada Ltd. and Petro-Canada, producing about 252,000 boe/d with
reserves of more than 1.43 billion boe, converting gas to oil on a
10-to-1 basis. Analysts say if first-quarter results are
annualized, the merger in 2000 will result in estimated annual
revenues of more than C$5 billion, earnings of more than C$485
million, and cash flow of C$1.55 billion.
The newly formed Husky Energy would have a stock market value of
C$7.2 billion, and become one of the top Canadian heavy oil, oil
sands and East Coast offshore operators. Under terms of what is
considered a friendly offer, Renaissance shareholders may choose to
take C$18 cash per share in the new company - up to C$500 million -
or trade share-for-share in the new company, Husky Energy.
Renaissance shareholders also would receive a special return of
capital of C$2.50 per share in the merger. Based on an estimated
total value of C$19.40 a Renaissance share, the offer represents a
28% increase over the average market price in the past two weeks.
Husky Energy also would assume Renaissance's C$1.4 billion debt.
"This is a win-win for both companies and a major step in
realizing future growth potential," said Husky's current and future
CEO John Lau, who has led the company since 1993. "We have high
regard for Renaissance, its achievements and its people."
Renaissance, which at one time had been a darling of the
Canadian energy companies and is still one of the leading oil and
gas producers in the country, has been struggling for about three
years now because of high production costs. The company has long
had a reputation for buying up huge tracts of land in western
Canada and then drilling wells quickly to keep its production
However, Renaissance's high-risk method of exploration and
production began to backfire in 1997, and the company began to lose
value and a lot of its glamour. Earlier this year, Clayton Woitas,
Renaissance's longtime CEO, resigned, and the company has since
been looking for a new direction.
Irwin Michael, a Toronto portfolio manager with ABC Funds, which
holds Renaissance shares, called Renaissance a "sitting duck"
waiting to be taken over. Following the news Monday, Renaissance
shares climbed C$0.45 to C$17.05, following a jump last Friday of
C$1.70 amid merger rumors.
Currently a closely held private oil and gas producer, Husky's
major shareholders include Hong Kong billionaire Li Ka-Shing and
his company, Hutchison Whampoa Ltd. For several years, Husky
officials had indicated they wanted to go public again after being
taken private nearly 20 years ago. Currently, Husky is 49% owned by
Li's company, while Li and his family directly own another 46%, and
the Canadian Imperial Bank of Commerce owns the remaining 5%.
In 1999, nearly 50% of Husky's operating profit was generated by
its upstream operations, which include the exploration, development
and production of crude oil, natural gas and NGLs. The company's
upstream operations are mostly located in western Canada and
offshore the east coast of Canada.
Lau said last week that he expects the Hong Kong shareholders to
keep their stakes in the company. In fact, Lau said they
demonstrated their confidence in the merger by raising their stake
in the new Husky Energy to 71.5% after the companies agreed to a
65-35% Husky Oil-Renaissance split. Lau also does not anticipate
major asset sales when the deal is finalized. "From our point of
view, all the assets are complementary to each other," he said.
Meanwhile, Renaissance Chairman Ron Greene, who would become a
director in Husky Energy, said some of the combined new company's
1,800 employees may lose their jobs. Husky now has about 1,000
employees while Renaissance has 800. "There will be some
duplication, obviously, but we think it will be minimal," Greene
said. "We do not want to have the implication that we're out to cut
costs by cutting employees. That's not our business plan here."
Greene said the transition would be invaluable to current
Renaissance shareholders because the merger would move the company
into "several new medium and long-term upstream operating areas as
well as midstream/downstream activities." Shareholders are expected
to vote on the merger at the end of August, Renaissance officials
What does Husky Energy offer to the market? Just looking at this
year, the merger, on paper anyway, offers quite a lot. In
exploration and production, Husky Energy would produce an estimated
184,000 barrels of oil and gas liquids a day and 681.5 MMcf/d of
natural gas. It would have proved reserves of 610 MM/barrels of oil
and gas liquids, 2.529 Bcf/d of natural gas. Probable reserves
would be 514.7 MM/barrels of oil and liquids and 426 Bcf/d of gas.
And in western Canada, there would be 10.4 million acres of
Its oil and gas production would include operations in all
western Canadian provinces and east coast offshore projects in
Newfoundland, which holds 72.5% of the proposed White Rose oil
project, 12% of the Terra Nova project now in development and 16
other explration and discovery licenses. It also would have
international operations in Indonesia and Libya.
The Husky Energy refining, marketing and pipeline operations
would offer heavy oil upgrading capacity of 65,000 bpd at an
upgrading plant at Lloydminster, with 35,000 bpd of refining
capacity and more than 500,000 bpd of pipeline throughput capacity.
There also would be 597 Husky and Mohawk branded retail outlet
Carolyn Davis, Houston