NGI The Weekly Gas Market Report
Rigel Energy, a medium-sized producer based in Calgary, got the desired results from its summer-long, self-advertising campaign last week in the form of a $C1.2 billion merger offer from Talisman Energy. Rigel’s board of directors said it will recommend acceptance of the offer to the company’s shareholders. Talisman is expected to mail its formal takeover bid offer on Sept. 2, and the offer will be open for acceptance for at least 21 days, Rigel said.
The combination of the two companies will form a major Canadian gas presence. Talisman, one of Canada’s largest gas producers, averaged a total of 648 MMcf/d of production for the first six months of 1999. Much of this production came from Talisman’s assets in the Alberta foothills including the Peace River Arch gas play. Natural gas sales from the Alberta Foothills averaged 68.7 MMcf/d in the second quarter, reaching a record 73 MMcf/d in July.
Rigel, which averaged 155 MMcf/d of production in 1998, announced it was opening a data room to field offers for its company in early June (see NGI, June 7). “This was a very extensive process that resulted in a number of competitive bids,” said Don West, Rigel’s CEO. “I am very pleased to announce this transaction with Talisman which will provide Rigel shareholders a continuing stake in the significant upside potential of the company’s properties.” West added that Talisman has indicated it will keep most of the Rigel work force intact.
Craig Langpap, an analyst with Calgary-based Peters & Co., said the move was made with Calgary-based Talisman in mind. “Talisman is the only logical company to buy all the assets. It might have made sense for other companies to buy parts of Rigel, but it makes sense for Talisman to buy it all.”
The announcement did not surprise Roger Roberge, head of the transaction energy group at Pricewaterhouse Coopers. “Talisman, along with Alberta Energy, were always the frontrunners for Rigel. The game for super independents is growth and Talisman’s stock has been performing so well lately that I’m not surprised about the deal.”
Langpap said one of the main reasons for his thinking is the purchase’s effect on Talisman’s Peace River Arch assets. Rigel holds a significant land position of 360,000 net acres in the combined portions of Alberta and British Columbia comprising the Peace River Arch play. During 1998, Rigel drilled 40 gross wells (23.8 net) in the area, of which two-thirds were development wells. These wells target natural gas reserves with potential ranging from between 2-10 Bcf per section, with associated natural gas liquids of up to 500,000 barrels. Along with these assets, Rigel also has other properties in western Canada, including the Bivouac, Chinchaga, Firebird, Mega, Moose Mountain, Highrock, Hamburg, Sabbath and Venus operating areas.
Talisman’s North Sea presence will also be bolstered by the merger, Langpap noted, as its interest in the Blake oil play would exceed 50%.
Overall, the merger should add 10% to Talisman’s oil production and 20% to its gas production, Langpap predicted. “This is just a continuation of Talisman’s strategy ever since it was spun off from British Petroleum. They have always been an aggressive buyer and driller.”
If successful, this would be Talisman’s second merger of the summer. In June, the company announced a bid for Highridge Exploration Ltd., another Canadian producer. The offer was accepted in July for approximately $C90 million, bringing over 40 new gas prospects in western Canada.
Talisman is offering to purchase all of the issued and outstanding Rigel common shares from Rigel shareholders on the basis of 0.3 Talisman common shares and $1 in cash for each Rigel share. Based on the five-day weighted average trading price for Talisman shares as of Friday, Aug. 20, the offer represents a value of $14.84 per Rigel share.
Along with its Canadian operations, Talisman owns assets in the North Sea, Indonesia and Sudan. Talisman is also conducting exploration in Algeria and Trinidad. Talisman’s shares are listed on the Toronto and Montreal stock exchanges in Canada and the New York Stock Exchange in the U.S.
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