U.S. firms covet Canadian gas producers, management
03:00 p.m Aug 20, 1999 Eastern
By Dann Rogers
CALGARY (Reuters) - U.S. energy companies will continue their hot pursuit of Canadian firms -- and the senior management of those producers -- in a bid to secure ample natural gas output in coming years, analysts said Friday.
Driven by myriad drilling opportunities in western Canada amid record-high natural gas prices and a weak Canadian currency, many U.S. companies are beating the bushes in downtown Calgary for exploration and production assets.
Calgary-based Probe Exploration Inc. , for example, said Thursday it was on the auction block and ready to sell all or part of the company or take on an equity partner.
Probe said that 10 firms, including some U.S. companies, had signed up to review its operating data.
The latest wave of cross-border merger mania was launched Monday when Calgary's Poco Petroleums Ltd. agreed to be acquired by Houston-based Burlington Resources Inc..
While U.S. interest in the Canadian energy sector is nothing new, this time around U.S. firms appear to be convinced that Canadian management should be retained to operate the assets.
When Burlington announced its takeover, the company stressed that senior management and staff of Poco would be kept in place.
''I think the U.S. firms are learning some lessons from the takeover of Northstar by Devon Energy last year,'' said Murray Edwards, a prominent local energy entrepreneur with interests in a number of firms, including Canadian Natural Resources Ltd. and Penn West Petroleum Ltd., both of Calgary.
Last December, Oklahoma-based Devon Energy Corp. acquired Calgary's Northstar Energy Corp. but retained Northstar's name and senior management.
''It was a terrific idea to keep the Northstar name on the door and preserve continuity of leadership,'' said Northstar President John Hagg.
''At the time it was a unique example, but it's paid off. There has been lower turnover in Northstar staff in the last year than in the three years previous. Once the senior leadership leaves, the rest of the staff tends to follow.''
The need to retain local managers of Canadian energy firms will play a role in how U.S. firms structure the expected increase in cross-border deals, according to Wilf Gobert, analyst with Calgary brokerage Peters & Co. Ltd.
''The targets are Canadian gas companies, but the U.S. firms will have to decide if they want to be operating partners or outright owners of the assets. If they don't partner, they will be risking holding on to local management and the expertise they have operating in this environment.''
His picks of U.S. firms which might launch takeovers or mergers include Dominion Resources Inc. of Richmond, Virginia, Houston-based Coastal Corp. and Anadarko Petroleum Corp. , also of Houston.
U.S. oil companies are attracted by plentiful natural gas drilling prospects compared with the onshore United States, as well as arbitrage opportunities between Canadian and U.S. gas prices, analysts said.
Although companies have been drilling in western Canada for over 80 years, the region is still far less developed than the United States, where rich new gas reserves have been elusive. Analysts say the U.S. independents need bigger and bigger fields to stay ahead of the game.
Copyright 1999 Reuters
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