After being outbid twice in its hostile takeover battle for the shares of Canada Southern Petroleum, Petro Canada said Thursday that it had no intention of raising its offer for a third time. White knight Canadian Oil Sands bested Petro-Canada’s latest $13/share offer by a dime on Wednesday, retaining the favor of the Canada Southern board.

Canada Southern shares gapped sharply higher on the NASDAQ last 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.

The move by Petro-Canada/Nosara on Wednesday prompted an immediate reaction from Canadian Oil Sands, which raised its offer to $13.10.

“For precisely the same reasons we indicated at the outset, our interest in this particular asset persists due to its unique attributes,” said Canadian Oil Sands CEO Marcel Coutu. “This Arctic natural gas resource provides a hedging strategy with unparalleled duration for our natural gas requirements at Syncrude, and secondly, provides an opportunity for us to participate in the development of a long-life energy resource.”

On June 18 Canada Southern agreed to a friendly offer by Canadian Oil Sands. The company again recommended on Wednesday that shareholders accept the sweetened Canadian Oil Sands deal. With 14.5 million Canada Southern shares outstanding, Canadian Oil Sands’ latest $13.10/share offer would represent a total value of about $190 million for the company.

“We had a range of values for these assets. Going any further would exceed that threshold and not represent value to us,” said Kathy Sendall, senior vice-president of Petro-Canada’s North American natural gas business. “This was always just an option play for us. Our best offer is on the table. We will not increase this offer and we will let our existing bid expire on July 27, 2006. With the carried interest still in place, the value of this asset to us is significantly diminished so we will direct our resources to other long life opportunities in our portfolio.”

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 producing assets in the Yukon Territory, in northeastern British Columbia and in southern Alberta.

Petro-Canada 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 coveted 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.

Sendall said the Arctic assets will “play an important role in the future development of northern Canadian natural gas.” While Petro-Canada has no development plan in place, any development of the Canadian Arctic would “require considerable land consolidation,” the company said.

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