The heated bidding war over Canada Southern Petroleum shares boiled over last week with Petro-Canada subsidiary Nosara Holdings Ltd. increasing its offer by 47% to US$11/share and then Canadian Oil Sands raising its offer 14% to $11.10/share, or about $161 million. Canada Southern on Friday urged shareholders to accept the sweetened Canadian Oil Sands offer.

Meanwhile, rival bidder Canadian Superior told Canada Southern Petroleum shareholders last week that its original offer (2.75 shares and C$2.50 cash for each Canada Southern share) represents the best long-term value because its shares currently are underpriced in the market.

Canada Southern’s shares jumped 11.5% to $US11.94 on the NASDAQ on the action on Thursday. Petro-Canada said its new offer applied to all Canada Southern shareholders, even those who already tendered common shares to the prior Nosara offer of only $7.50/share. The offer also was extended until July 17. It is conditioned, however, on Canada Southern dropping its shareholder rights plan, which allows the company to offer shareholders more of its shares in exchange for not tendering them to a hostile takeover bidder.

The big attraction of Calgary-based Canada Southern is its 39,000 net acres in the Canadian Arctic Islands. Canada Southern estimates its potential Arctic gas reserves at about a net 927 Bcfe, which is 68 times greater than its current 13.7 Bcfe of proved and probable reserves. The company also has about 1,100 boe/d of gas production from assets in the Yukon Territory, in northeastern British Columbia and in southern Alberta.

Petro-Canada has argued that Canada Southern overestimates its Arctic resources because only a portion are thought to be economically accessible and currently none are accessible because there’s no transportation infrastructure. Nevertheless, Petro-Canada still clearly covets the assets.

Petro-Canada already is the single largest leaseholder in the Canadian Arctic Islands with 187,000 acres, but it sees a need to aggregate many more reserves in the far north before proceeding with a development plan.

“The Arctic Islands are a strategic, long-term asset for Petro-Canada,” said Kathy Sendall, senior vice-president of Petro-Canada’s North American Natural Gas business. “By acquiring Canada Southern, not only do we add an important piece to our northern portfolio, but we also remove the economic burden of the carried interests — a logical step for future development of these resources. In addition, as the controlling interest holder and as an established operator, it just makes sense that we would consolidate and develop these future resources.”

However, Petro-Canada has a tough battle on its hands. Canadian Superior values its own offer for Canada Southern at US$13.28/share based on an internal estimate of its asset value at US$4.02/share. “We are very optimistic that Canada Southern’s shareholders will recognize the full and fair value of Canadian Superior’s bid for Canada Southern,” said Canadian Superior CEO Greg Noval.

In two jabs at his competitors, Noval added the the Canadian Oil Sands offer seems to violate recent promises to shareholders that Canadian Oil Sands would stay focused on Alberta oilsands operations. He also said that unlike the Petro-Canada and Canadian Oil Sands offers, Canadian Superior’s offer is not subject to a 66.6% minimum threshold of shares tendered.

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