Talisman buys out Lundin - Financial Post, June 22
Claudia Cattaneo, Calgary Bureau Chief
CALGARY - Talisman Energy Inc. agreed yesterday to purchase Swedish oil company Lundin Oil AB, its neighbour in Sudan, for $529-million in cash in a complex three-way deal that could pave the way for Talisman's exit from the embattled African country.
Petro-Canada, 18% owned by the Canadian government, has also bid to take over Lundin's assets in Libya -- another oil-rich country under U.S. sanctions -- for $112-million, while Lundin's interests in Sudan and Russia would be spun off into a new company to be traded in Sweden that will continue under Lundin's current management.
Talisman is offering US$3.43 for each class A and class B share of Lundin Oil, retaining the company's interests in the North Sea, Malaysia, Vietnam and Papua New Guinea.
"The key strategic driver for us is the very large upside in Malaysia," Jim Buckee, president and chief executive of Talisman, said in a conference call with analysts.
"It establishes a new core area for Talisman, with the potential to produce over 50,000 boe per day of net production in 2004." Overall, the assets are producing about 7,000 barrels of oil equivalent this year and expected to grow with further development to about 60,000 boes by 2004.
In the call, Mr. Buckee suggested that finding a new area of entry "is one of the necessary preconditions" for exiting Sudan, even if the United States doesn't approve a bill to prevent Talisman and other foreign companies operating in the war-torn country from selling securities in the U.S. market.
Martin Molyneaux, research director at FirstEnergy Capital Corp., said the acquisition looks expensive based on current production. However, he said "if you look through it, the Malaysian opportunity makes all the sense in the world. Talisman gets to bring its chequebook and its project execution expertise to bear here."
Mr. Molyneaux noted Talisman is already a partner with the Malaysians in the Sudan oil project, and the two may find a way "to help each other out," on Sudan. Talisman's other partners in the country are the national oil companies of Sudan and China, another potential bidder for its 25% stake.
Mr. Buckee said this week Talisman was considering offers for its controversial properties in Sudan because it can't afford to be "offside" if the U.S. changes its law.
When asked whether Talisman would remain in Sudan if the bill does not pass, Mr. Buckee replied: "It doesn't necessarily mean that at all." When asked to clarify whether Sudan is for sale, Mr. Buckee said: "All assets are for sale."
Mr. Buckee said Talisman, Canada's largest oil and gas producer, did not purchase Lundin's assets in Sudan and Russia because they were not on offer.
He said earlier he has been approached about its assets in Sudan from parties in the Middle East and further East who are less concerned about U.S. actions.
A report Wednesday in Al-Hayat, an Arabic-language daily newspaper published in the United Kingdom, says one of the offers has come from Saudi Investor Group Int., a group active in oil production. The group is said to be linked to al-Waleed bin Talal, the Saudi Arabian billionaire prince known for his stake in EuroDisney.
Mr. Buckee also said Talisman has not discussed putting its Sudanese assets into Lundin's new company.
He said the new company would likely not have the resources to buy Talisman's Sudanese 25% stake in Sudan's largest oil project, which has been valued at $1-billion to $1.5-billion.
Lundin's concession in Sudan is located immediately south of Talisman's. There's little co-operation between the two companies, he said.
"If you want to read something into it, implicitly, the fact that they don't want Lundin's Sudanese assets means that they don't believe they are prospective, or they have enough of Sudan, they don't want any more," said Brian Prokop, analyst at Peters & Co.
The deal has the support of the Lundin family -- which owns 26.6% of the company.
Adolf Lundin, chairman of Lundin Oil, said the spinoff company "will start trading with a very strong asset base and a management team with a proven track record at finding oil."
Talisman's oil development in Sudan has been heavily criticized by church and non-governmental organizations, who say it fuels a civil war between the Muslim central government and black African, predominantly Christian or animist southerners.
ccattaneo@nationalpost.com
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