Canada Southern Petroleum shares gapped sharply higher on the NASDAQ Wednesday morning and reached a new 52-week high of $13.49 after Petro-Canada announced that its subsidiary Nosara Holdings Ltd. was raising its offer for the shares of the company for a second time to $13/share from $11. Nosara’s original offer in May to Canada Southern shareholders was $7.50, but a bidding war with Canadian Oil Sands and Canadian Superior over the shares raised the stakes significantly (see Daily GPI, June 30).
Canada Southern’s board has favored a combination with Canadian Oil Sands and has recommended that shareholders accept the Canadian Oil Sands deal. After Petro-Canada upped the ante on Thursday June 29 to $11/share, Canadian Oil Sands chipped in $11.10/share a day later. With 14.5 million Canada Southern shares outstanding, Petro-Canada’s latest $13/share offer would represent a total value of about $188.5 million for the company.
Petro-Canada said that all Canada Southern shareholders tendering their common shares, including shareholders who already tendered shares to the prior Nosara offer, will receive the increased offer price. The offer also has been extended until 7 p.m. MDT July 27.
Petro-Canada has requested that Canada Southern waive the shareholder rights plan adopted by Canada Southern on May 24. If it does not, Petro-Canada will seek a hearing with the Alberta Securities Commission for an order to cease trading on any securities issued or to be issued in connection with the rights plan before the expiry time. The offer by Nosara is conditional upon the termination of the rights plan at or prior to the expiry time of the offer.
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 (see Daily GPI, May 26). The company also has producing assets in the Yukon Territory, in northeastern British Columbia and in southern Alberta.
Petro-Canada has argued that Canada Southern overestimated 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.
“We believe these Arctic assets will play an important role in the future development of northern Canadian natural gas,” Kathy Sendall, senior vice-president of Petro-Canada’s North American Natural Gas business, said on Wednesday. “While we have no current development plan, any development of the Canadian Arctic would require considerable land consolidation. Acquiring this piece and removing the burden of the carried interest is an important step in that consolidation. As we’ve said before, as the controlling interest holder and as an established operator, it just makes sense that Petro-Canada would be in the best position to consolidate and develop these future resources.”
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