Citing the remote location of Canada Southern Petroleum’s gas resources in the Canadian Arctic Islands, Petro-Canada said Tuesday that it is “disappointed” that Canada Southern’s board has urged shareholders to reject Petro-Canada’s US$113 million offer on grounds that it undervalues its potential Arctic reserves.
Canada Southern estimated 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).
“When Canada Southern shareholders review the Petro-Canada offer and consider the future challenges of Arctic development, we believe they will find our offer is fair and recognizes the value of all the company’s assets including the Canadian Arctic Island assets. In fact, this offer is a significant premium to recent market prices before our announced offer,” Kathy Sendall, senior vice president of North American natural gas for Petro-Canada, said, indicating that Petro-Canada has no intention of changing the hostile takeover offer.
“We took the offer directly to the Canada Southern shareholders after nearly two months of negotiations and only when it became clear that we would be unable to reconcile the differing views of value between Petro-Canada and Canada Southern,” she said. Petro-Canada has offered US$7.50/share, a premium of 58% over the closing price of Canada Southern’s shares on NASDAQ on May 10 and 45% over the volume weighted average trading price on NASDAQ for the 30 trading days ended May 10.
Last week, Canada Southern Chairman Richard C. McGinity said the offer is “inadequate and fails to recognize the economic and strategic value of Canada Southern’s Arctic assets… At a time when geopolitical instability in Nigeria, the Middle East, Russia and South America is threatening the supply of oil and natural gas, the Arctic Islands are coming to the fore as a significant, discovered and secure resource with the potential for ready access to key North American markets, including through Petro-Canada’s proposed LNG plant at Gros Cacouna, Quebec,” he said.
The Calgary-based company has producing assets in the Yukon Territory, in northeastern British Columbia and in southern Alberta, but the company also holds about 39,000 net acres in the Canadian Arctic Islands.
However, Petro-Canada said Tuesday that Canada Southern overestimates its Arctic resources because in publicly available studies only a portion are thought to be economically accessible. Furthermore, Petro-Canada, the single largest lease holder in the Canadian Arctic Islands with 187,000 acres, has no development plans in the works. “Challenges such as technology, fiscal regime, financial strength of potential partners, commodity prices and time to initial production mean no assurances can be given that these assets will be developed in a reasonable time frame,” the company said in a statement.
“Significant consolidation of the existing diverse ownership in the various Canadian Arctic Island Significant Discovery Licenses will be required before any operating agreement can be entered into and development plans proceed. However, as the single largest leaseholder and likely operator in Canada’s Arctic Islands, Petro-Canada would be the logical company to initiate future development — if and when future conditions are supportive.”
Petro-Canada also announced that it taking legal action to set aside the shareholder rights plan adopted by Canada Southern, which restricts the rights of Canada Southern shareholders to accept the offer.
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