Houston-based Burlington Resources Inc., hoping to duplicate its success in the gas-rich San Juan Basin, on Tuesday agreed to purchase Calgary’s Canadian Hunter Exploration Ltd. for C$53 a share, or $2.1 billion in cash (C$3.3 billion), gaining about 1.2 Tcf and 6.2 million bbl of estimated proved reserves and nearly two million net undeveloped acres and seismic data. When the transaction closes, Burlington will have 90% of its production focused on North American natural gas, with 40% in Canada.

The deal also will move Burlington into the top tier of exploration and production companies in North America, behind Exxon Mobil and BP, almost doubling the company’s existing investment in Canada and adding a portfolio of high producing properties characterized by low operating costs, long-lived reserves and future exploration and production potential.

Burlington CEO Bobby S. Shackouls said the company only approached Canadian Hunter about a transaction at the beginning of September after “watching” it for two years. “Other than the Hunter team themselves, we feel we know these properties better than anybody….it’s a match made in heaven.”

Excluding the impact of asset sales, which Burlington expects within the next 12-18 months, the addition of Canadian Hunter’s volumes represents almost 20% of Burlington’s 2001 expected full-year average natural gas equivalent volumes. Burlington estimates that net of divestitures, its future production growth will average between 3-8% through 2005. Reserves will expand by 12% to 11.5 Tcfe, based on Burlington’s year-end 2000 reserves and Canadian Hunter’s current reserves.

Noting Burlington’s track record in the San Juan Basin, where most of its current North American exploration exists, Shackouls said the San Juan and Western Canadian assets “will serve as bookends to the Rocky Mountain fairway. We remain convinced that the Rocky Mountain gas fairway…will be pivotal in meeting the future needs” of the natural gas market.

“This transaction is much more than a sheer play on price,” said Shackouls. “The Hunter assets are extremely high quality, and it affords us a chance to do something we have not been able to do for years. As we bring Hunter into the fold, we’ll be able to accomplish our objectives and establish a meaningful growth profile.”

Burlington will gain Canadian Hunter’s dominant position in Canada’s Deep Basin, the third largest natural gas field in North America, which is only partially developed. Canadian Hunter holds interests in about 1.5 million acres in the basin, with 17 major producing horizons. Shackouls noted that the Deep Basin is similar to the San Juan Basin, where Burlington has used its conventional gas and coalbed methane expertise to become a leading producer.

Canadian Hunter holds interests in several other important producing areas in the Canadian Sedimentary Basin, including Border, Corridor, Kaybob, Ferrybank, Chedderville, Claresholm and Lethbridge — regions where Burlington also has contiguous production.

In the friendly deal, which was unanimously approved in special meetings of both companies’ boards of directors, the company will allocate $228 million of the aggregate purchase price to the undeveloped acreage and seismic data and $250 million for processing plants and other infrastructure — which is almost exclusively in the Western Canadian Basin.

By the end of this year, Burlington estimates that Canadian Hunter will have average net production of 430 MMcf/d and 2,700 bbl/d using U.S. standards. Based on these estimates, Burlington’s purchase cost equals $1.27/Mcfe/d and $4,640/Mcfe/d. The transaction is expected to close by the end of December.

Canadian Hunter CEO Steve Savidant said the deal “reflects the extremely high quality of our team of people and our large inventory of exploration and development opportunities in core areas.” Mirroring what Shackouls said, Savidant said the transaction will merge “complementary assets and skill sets, and together will create a combined entity with an even stronger natural gas focus in North America.”

Diffusing comments that Burlington’s announced share buyback program didn’t fit in with mergers and acquisitions, Burlington CFO Steve Shapiro said the company plans to continue its share buyback program, which was authorized to spend about $1 billion on share repurchases. Under its existing authorization, Shapiro said the company has spent almost $694 million to repurchase 16.3 million shares. The share buyback program was complementary with the acquisition plan, he said, because it would afford the company solid future growth.

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