Gulf Canada Resources is expecting to more than double its dailygas production by swallowing rival Crestar Energy in aC$1.7-billion ($1.1-billion) friendly cash and stock transaction,excluding C$565 million in debt assumption. The combination willform a top-five Canadian independent production company with plentyof room to grow.
Gulf said last week it is offering 3.333 of its shares plusC$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. Gulfalso is assuming C$565 million of Crestar’s debt, boosting thetotal value of the transaction to C$2.3 billion.
“It will position us for growth well into the future,” said GulfCEO Dick Auchinleck. “It strengthens our balance sheet, such thatour debt levels come more in line with other senior producers. Itprovides strong near-term cash flow that can be allocated moreefficiently across the asset base of both companies.”
He also noted the transaction doubles Gulf’s western Canadianundeveloped land base. It more than doubles Gulf’s western Canadianconventional production. “And probably most important, it more thandoubles our western Canadian gas production to over 615 MMcf/d andthat makes us a major player in the North American gas market.”
The combined entity would produce 288,000 barrels of oilequivalent a day in 2001, before anticipated asset sales of up to20,000 boe/d. Combined proved oil reserves would be 586 millionbarrels and gas reserves would total 3.3 Tcf.
The deal has a number of other positives, not the least of whichis that it ends a long period of asset sales and debt reduction forGulf. Gulf had been selling assets worldwide since 1998 to reduceits debt. It also provides for significant tax deductions at a timewhen high commodity prices are expected to lead to high tax billsin 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 ofCrestar’s taxable income next year would be sheltered by Gulf’s taxdeductions.
“It brings significant benefits to Crestar’s shareholders,” saidCrestar’s CEO Barry Jackson. “It gives our shareholders access toGulf’s diversified and unique assets, including Syncrude, Surmount,the Mackenzie Delta, East Coast and international areas, all ofwhich clearly have significant long-term growth potential; itbroadens the size and increases the liquidity of the shareholderbase; and it creates a critical mass and scope of operations, withthe capacity to compete aggressively in the international E&Parena.”
Crestar said it would not solicit any other offers, and agreedto pay Gulf a C$50-million fee if the deal is not completed. Gulf’soffer will be conditional on not less than 66 2/3 % of Crestar’sshares being tendered. The offer will be open for 21 days followingthe mailing of the take-over circular.
Gulf’s stock in Toronto was off C75 cents following theannouncement, 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 investorsmay have been expecting more asset sales from the company prior tothis large purchase. The company still is trying to sell its shareof a Canadian heavy oil venture with PanCanadian Petroleum.
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