Gulf Canada Swallows Smaller Rival Crestar
Gulf Canada Resources is expecting to more than double its daily
gas production by swallowing rival Crestar Energy in a
C$1.7-billion ($1.1-billion) friendly cash and stock transaction,
excluding C$565 million in debt assumption. The combination will
form a top-five Canadian independent production company with plenty
of room to grow.
Gulf said last week it is offering 3.333 of its shares plus
C$3.25/Crestar share in cash, which adds up to about C$29.75/share,
or about a 19% premium over Crestar's closing price on Friday. Gulf
also is assuming C$565 million of Crestar's debt, boosting the
total value of the transaction to C$2.3 billion.
"It will position us for growth well into the future," said Gulf
CEO Dick Auchinleck. "It strengthens our balance sheet, such that
our debt levels come more in line with other senior producers. It
provides strong near-term cash flow that can be allocated more
efficiently across the asset base of both companies."
He also noted the transaction doubles Gulf's western Canadian
undeveloped land base. It more than doubles Gulf's western Canadian
conventional production. "And probably most important, it more than
doubles our western Canadian gas production to over 615 MMcf/d and
that makes us a major player in the North American gas market."
The combined entity would produce 288,000 barrels of oil
equivalent a day in 2001, before anticipated asset sales of up to
20,000 boe/d. Combined proved oil reserves would be 586 million
barrels and gas reserves would total 3.3 Tcf.
The deal has a number of other positives, not the least of which
is that it ends a long period of asset sales and debt reduction for
Gulf. Gulf had been selling assets worldwide since 1998 to reduce
its debt. It also provides for significant tax deductions at a time
when high commodity prices are expected to lead to high tax bills
in the industry, the companies said.
Gulf's cash flow per share is expected to increase 14% in 2001,
and its earnings per share are expected to rise by 20-25%. All of
Crestar's taxable income next year would be sheltered by Gulf's tax
"It brings significant benefits to Crestar's shareholders," said
Crestar's CEO Barry Jackson. "It gives our shareholders access to
Gulf's diversified and unique assets, including Syncrude, Surmount,
the Mackenzie Delta, East Coast and international areas, all of
which clearly have significant long-term growth potential; it
broadens the size and increases the liquidity of the shareholder
base; and it creates a critical mass and scope of operations, with
the capacity to compete aggressively in the international E&P
Crestar said it would not solicit any other offers, and agreed
to pay Gulf a C$50-million fee if the deal is not completed. Gulf's
offer will be conditional on not less than 66 2/3 % of Crestar's
shares being tendered. The offer will be open for 21 days following
the mailing of the take-over circular.
Gulf's stock in Toronto was off C75 cents following the
announcement, or about 9%, to C$7.20. Crestar's shares, however,
jumped C$1.85, or 7%, to C$26.85. Some analysts said Gulf investors
may have been expecting more asset sales from the company prior to
this large purchase. The company still is trying to sell its share
of a Canadian heavy oil venture with PanCanadian Petroleum.