All: Food for thought...
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GULF CANADA'S J.P. BRYAN SEES AN OPPORTUNITY
Business West - Globe & Mail
Tuesday, June 10, 1997
By Mathew Ingram
THE latest morsel in the seemingly unending J. P. Bryan acquisition buffet has been identified: last Friday, Gulf Canada's head honcho said he has decided to take a run at CS Resources, a fairly small Calgary company that is active in an oil and gas region with some very big potential. And if there's one thing that catches J.P.'s eye, it's unrealized potential.
In fact, that's a good description of what makes a company a target for hostile bidders in general. The perfect prey is a company with assets that are underappreciated by the market -- in some cases because management hasn't acted quickly enough in producing value, and in other cases because the market is focused on short-term cash flow instead of long-term potential.
The turning point comes when some other industry player recognizes that there is that kind of value gap. Clearly, Gulf has come to the conclusion that this kind of gap exists with CS Resources, and J. P. Bryan's $413-million cash-and-stock offer is an attempt to take advantage of that.
For its part, CS Resources said Friday it was already in discussions with another party about a partnership before the Gulf bid came along, and that those talks are continuing. This led many to suspect one of the usual cast of acquisitors -- Alberta Energy, Canadian Natural Resources, PanCanadian or even Husky -- but some say it is more likely that the other party is another medium-sized player ready to do a joint venture.
Some analysts say CS Resources is in this situation because it hasn't been aggressive enough in developing the assets it holds in the Pelican Lake area of northern Alberta. The region contains what many feel are abundant supplies of heavy oil, a thicker version of the black goop found elsewhere.
Heavy oil wasn't seen as terribly valuable until recently because it requires costly upgrading before it can be sold for fuel and other purposes. However, with the supply of conventional light crude dwindling in recent years, interest has increased.
In any case, CS Resources has been active in heavy oil for more than five years, using various new technologies such as horizontal and multilateral directional drilling techniques. The company has also been using the tricky and largely unproven steam-assisted gravity drainage (SAGD) process, which involves pumping steam into the deposit in order to liquefy the heavy oil.
Analysts such as Scott Inglis of FirstEnergy Capital say CS Resources has gained a significant reputation for this kind of technology, a reputation enhanced last fall when the company convinced Dee Parkinson-Marcoux to become president. Before her move, Ms. Parkinson-Marcoux had received acclaim for helping turn around Suncor Energy's oil sands operations.
However, there has been a perception that CS Resources -- founded by Dennis Sharp, former chairman of the Canadian Association of Petroleum Producers -- has "treated its properties as a science project" instead of trying to maximize the assets as quickly as the market would like, says Mr. Inglis. "Sometimes you just have to get out there and drill some wells."
CS Resources' slow pace becomes more obvious, some feel, when compared with that of another player active in the area. Amber Energy of Calgary has become the market's darling over the past year because it has moved into the Pelican Lake area with such force, moving rapidly to drill out the deposit and book the kinds of reserves that investors want to see.
Last week, Amber said it had identified new oil reserves of 114 million barrels at its Pelican Lake site, almost 15 times as much as it had previously estimated. Amber said it plans to boost production from the area to 40,000 barrels a day within the next few years, from the roughly 4,000-barrel-a-day level currently. Amber's stock surged to a new 52-week high of $17.40 on the news, up from just $9 in December.
"CS [Resources] has been in the area for five years and is producing 3,000 barrels a day," says one analyst. "Amber has been in there since November and is going to be producing 9,000 barrels." In contrast to Amber's rise, CS Resources' stock has been stuck in the $10 to $12 range for a year. In fact, Ms. Parkinson was said to be worried about the share price because it might attract exactly the kind of bid J.P. Bryan has just launched.
In an interview yesterday, Ms. Parkinson-Marcoux said her company is continuing discussions with an unidentified third party, and the board is "fully cognizant of its fiduciary duty to maximize shareholder value, and will give full and fair consideration to the alternatives."
She also said CS Resources is "not a promotional company" that tries to talk its share price up, but instead focuses on doing its work and lets the market come to its own conclusions. Unfortunately, the market seems to have determined that CS Resources deserves to be taken over by Gulf. The stock closed yesterday at $14.85 -- not far above the Gulf offer of $14.25 -- implying that investors are not hopeful that there will be a much higher offer.
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Razor
Arrakis teaches the attitude of the knife -- chopping off what's incomplete and saying: "Now, it's complete because it's ended here."
from "Collected Sayings of Muad'Dib" by the Princess Irulan
Dune 172 |
