Talisman to buy Petromet - Globe and Mail, April 11
By DAVID PARKINSON
Calgary — Oil patch heavyweight Talisman Energy Inc. strengthened its natural gas position in west-central Alberta Tuesday, agreeing to buy mid-sized producer Petromet Resources Ltd. for $731-million in cash.
Calgary-based Talisman will pay $13.20 a share for Petromet, a 26-per-cent premium on Petromet's closing price Monday. The boards of both companies have approved the deal, which requires acceptance by at least two-thirds of Petromet's shareholders. Talisman expects to complete the acquisition by late May.
In addition to the $731-million price of the share purchase, Talisman will pay off about $75-million in Petromet debt. The company said it will finance the acquisition through its existing credit lines.
"This is a good marriage of assets, infrastructure and upside potential in Canada," Jim Buckee, president and chief executive officer of Talisman, said in a news release.
Analysts said the purchase will add to Talisman's existing asset base in one of its core areas. Most of Calgary-based Petromet's producing assets and exploration lands are in the Bigstone and Wild River properties northwest of Edson, a region where Talisman has been actively building its property holdings and infrastructure.
Talisman operates a major gas plant in Edson, and last September acquired the Central Foothills Gas Gathering System that feeds the plant. Since then, the company has purchased several large land blocks in the region. The Edson area is just north of the big Alberta Foothills natural gas play, where Talisman has substantial holdings.
"This is in Talisman's back yard," said Duncan Mathieson, an analyst at Scotia Capital Inc. in Toronto.
The acquisition will add about 110 million cubic feet a day of natural gas production over the remainder of the year, as well as 2,000 barrels a day of crude oil output. Prior to the acquisition, Talisman had projected its worldwide production this year at about one billion cubic feet a day of natural gas — including 790 million in Canada — and 270,000 barrels a day of oil.
The purchase will add 291 billion cubic feet of proven natural gas reserves and seven million barrels of proven oil reserves, with a reserve life of 7.2 years.
Talisman said it expects the acquisition to generate $250-million of cash flow this year, boosting Talisman's cash flow per share into the $23-$24 range, up about $2 from Talisman's preacquisition forecasts, based on forward prices for natural gas futures on the New York Mercantile Exchange.
"I like the deal. It's very accretive to cash flow," Mr. Mathieson said.
During a Talisman conference call Tuesday afternoon, some analysts expressed concern about the relatively high price Talisman is paying for the Petromet assets, which works out to $1.92 for 1,000 cubic feet of proven reserves. However, Talisman officials noted that they are making arrangements to hedge all of Petromet's production from Bigstone and Wild River at $8 for 1,000 cubic feet over the next three years, and said the operating costs on the properties are just 20 cents for 1,000 cubic feet.
"I don't see how that can be construed as expensive," Mr. Buckee said.
The company added that with the cash flow generated from Petromet's assets, the cost of the acquisition will be paid off in about two years.
On the Toronto Stock Exchange Tuesday, Talisman's stock slipped 23 cents to close at $59.77, while Petromet surged $2.56 to $13.04. |
