Canadian Natural to acquire Rio Alto; conference call
Rio Alto Exploration Ltd RAX
Shares issued 75,184,212 May 10 close $15.95
Mon 13 May 2002 News Release
See Canadian Natural Resources Ltd (CNQ) News Release
Mr. Allan Markin of Canadian Natural Resources reports
CANADIAN NATURAL RESOURCES AND RIO ALTO EXPLORATION ANNOUNCE ...
Canadian Natural Resources Limited and Rio Alto Exploration have entered
into a merger agreement, whereby Canadian Natural will acquire all of the
issued and outstanding shares of Rio Alto following a distribution to Rio
Alto's shareholders of all of Rio Alto's international operations pursuant
to a plan of arrangement to be approved by the Rio Alto shareholders. In
commenting on the proposed merger, Rio Alto president and chief executive
officer Richard Cones, stated: "This merger represents a great opportunity
for the shareholders of both organizations. The combination of Canadian
Natural's strong balance sheet and larger, more balanced asset base with
Rio Alto's significant development potential in northwest Alberta, will
allow Rio Alto shareholders to realize the development of these properties
irrespective of the commodity price cycle. In addition, it will allow Rio
Alto shareholders to participate in Canadian Natural's significant near-,
mid- and long-term growth potential." Allan Markin, chairman of Canadian
Natural, commented: "Rio Alto has done an excellent job of accumulating a
large undeveloped land base and infrastructure in northwest Alberta. This
asset represents a large, high-quality operated core area upon which they
have an extensive geophysical database. As part of a larger, more balanced
company, the significant development potential of this new core area can be
more efficiently optimized by Canadian Natural."
Under the plan of arrangement, shareholders of Rio Alto will receive for
each share of Rio Alto held, at the election of the holder, $18.10 in cash,
subject to a total maximum of $850-million cash, or 0.3468 of a common
share of Canadian Natural, subject to a total maximum of 12.27 million
common shares of Canadian Natural. Based on 78,625,000 fully diluted common
shares of Rio Alto and Rio Alto's net total debt of $972-million, the
transaction is valued at approximately $2.4-billion. In addition, under the
plan of arrangement, shareholders of Rio Alto will receive for each share
of Rio Alto held one share in a new public company (Rio Alto International)
to be formed under the plan of arrangement. Rio Alto International will own
all of Rio Alto's assets located outside of Canada. Under the plan of
arrangement, the shares of Rio Alto International will have a value of
$1.90 per share, which approximates the book value of the Rio Alto
International assets and will correspond to the value of shares of Rio Alto
International that Canadian Natural will subscribe for concurrently with
the closing of the plan of arrangement.
Rio Alto International will hold all of Rio Alto's South American
operations, which include assets in the Oriente basin of Ecuador, which
currently produce approximately 7,500 barrels of oil per day and additional
assets in the San Jorge basin of Argentina, which currently produce
approximately 1,800 barrels of oil per day. Rio Alto International will be
capitalized with the issuance of approximately 78,625,000 shares to be
distributed under the plan of arrangement to Rio Alto shareholders and a
further 8.3 million shares to be issued to Canadian Natural at $1.90 per
Rio Alto International share for a total cash consideration of
$15.8-million. The board of directors of Rio Alto International will
consist of the five directors that presently constitute the Rio Alto board,
and Richard Cones and Bob Shaunessy will each be a managing director of Rio
Alto International. Upon completion of the plan of arrangement, Rio Alto
International will have no long-term debt and will have working capital in
excess of $20-million, which will include $15.8-million received from the
issue of Rio Alto International shares to Canadian Natural. This working
capital and the continuing cash flow from operations will provide Rio Alto
International with sufficient financial resources to continue to
aggressively exploit its assets, particularly those in Ecuador.
The common shares to be issued by Canadian Natural under the plan of
arrangement will represent approximately 10 per cent of the total shares of
Canadian Natural presently outstanding. The cash component of the plan of
arrangement will be financed by existing Canadian Natural bank facilities
and by drawing down on a new $500-million committed bank term facility
provided by Scotia Capital. With Canadian Natural's existing strong cash
flow base and additional cash flow from Rio Alto's assets, Canadian
Natural's level of debt to cash flow will temporarily increase to
approximately 2.0 times cash flow, but is forecast to reduce to 1.3 times
cash flow by year-end 2002. Similarly, debt to equity will increase from 41
per cent at the end of the first quarter of 2002 to approximately 47 per
cent on closing of the plan of arrangement, but will be reduced to 41 per
cent by year-end 2002.
The merger agreement provides that Rio Alto, in certain circumstances, will
pay Canadian Natural's costs associated with the plan of arrangement plus a
non-completion fee in the amount of 50 cents per Rio Alto common share
(fully diluted). In addition, Rio Alto has agreed to not solicit any
further offers, and to grant to Canadian Natural certain pre-emptive rights
if any other offers are received by Rio Alto.
The plan of arrangement associated with the transaction is expected to be
mailed to Rio Alto shareholders shortly. The offer will be subject to
various conditions, including approval by a minimum of 66-2/3 per cent of
the Rio Alto common shares voting on the plan of arrangement. Rio Alto has
retained RBC Capital Markets to provide Rio Alto with a fairness opinion on
the plan of arrangement. In addition, the terms of the plan of arrangement
were negotiated and agreed to on behalf of Rio Alto by an independent
committee of its board of directors, comprising Rio Alto directors John
Brussa, Lloyd Swift and Robert Shaunessy.
This transaction solidifies Canadian Natural's position as the
second-largest natural gas producer in Canada and moves Canadian Natural up
to the fourth-largest (previously sixth-largest) independent producer of
natural gas in North America, with production, after completion of the plan
of arrangement, estimated to be 1.5 billion cubic feet per day. The
transaction will increase Canadian Natural's natural gas exposure to 55 per
cent of its total production base on a barrel of oil equivalent basis while
at the same time providing natural gas development opportunities in a new
core region for Canadian Natural in northwest Alberta. Additional value
will be created under the plan of arrangement by integrating Rio Alto's
highly skilled technical staff into Canadian Natural's operations, as both
companies have similar business cultures.
As a result of the merger, it is estimated that Canadian Natural's 2002
cash flow per share will be 10 per cent higher than previously estimated,
while net earnings per share will approximate the net earnings per share
previously estimated.
The following table sets forth the daily production, reserves and
undeveloped land of Canadian Natural pro forma the merger:
Pro forma
Canadian Rio Canadian
Natural Alto Natural
Daily
production
Natural gas
(mmcf/d) 1,075 425 1,500
To 1,125 435 1,560
Crude oil
and NGLs
(mbbl/d) 200 11 211
To 210 12 222
Barrels of
oil equivalent
(mboe/d) 380 82 462
To 398 85 483
Proved
reserves
(1)
Natural
gas (bcf) 2,729 875 3,604
Crude oil
and NGLs
(mmbbl) 790 24 814
Barrels of
oil equivalent
(mmboe) 1,245 170 1,415
Probable
reserves
(1)
Natural
gas (bcf) 400 358 758
Crude oil
and NGLs
(mmbbl) 169 13 182
Barrels of
oil equivalent
(mmboe) 236 73 309
Core areas
undeveloped
land (net
acres) 7,684 2,999 10,683
(1) Before royalties and as at Dec. 31, 2001.
As a result of the merger, Canadian Natural expects to produce in the range
of 1,500 to 1,560 million cubic feet per day of natural gas during the
second half of 2002. This represents approximately 12 thousand cubic feet
per day of production for each common share of Canadian Natural. Production
will be concentrated in four core areas in western Canada. The South
Alberta area produces 157 million cubic feet per day from low-risk shallow
producing wells. The North Alberta region is a composite of the Canadian
Natural lands which produced about 365 million cubic feet per day from
low-risk multizone structures and a similar core area from Rio Alto that
produces about 150 million cubic feet per day. Rio Alto's northwest Alberta
area includes 284 million cubic feet per day of production from reservoirs
with multiple productive zones. Finally, Canadian Natural's northeast
British Columbia/northwest Alberta region produces about 535 million cubic
feet per day and is characterized by medium-risk, high-productivity wells
and high-risk high-effect deep exploration. This region also contains
Canadian Natural's centerpiece Ladyfern asset. Two additional Ladyfern
look-a-like structures are currently being drilled and one additional
structure will be drilled during the third quarter. Based on the
encouraging results of the first quarter 2002 drilling program, a further
five exploration wells are planned for 2003 winter drilling.
Canadian Natural has retained CIBC World Markets to act as financial
adviser and solicitation agent on the implementation of the plan of
arrangement. In addition, FirstEnergy Capital Corp., Peters & Co. Limited
and UBS Bunting Warburg Inc. have been retained by Canadian Natural as
strategic advisers on the implementation of the plan of arrangement.
A joint conference call with management of Canadian Natural and Rio Alto
will be held at 6:30 a.m. Mountain Time, 8:30 a.m. Eastern Time, on Monday,
May 13, 2002. The North American conference call number is 1-888-675-7686
and the outside North American conference call number is 1-952-556-2852.
Please call in about 10 minutes before the starting time in order to be
patched into the call. Should you experience difficulty in connecting to
the call, those in North America please call 1-800-374-6543 and for those
outside North America call 1-303-267-1295.
Media are invited to participate in listen-only mode.
Replay
A taped rebroadcast will be available until May 20, 2002, inclusive. To
access postview in North America, dial 1-800-615-3210 and enter the
passcode 1851310. Those outside North America dial 1-703-326-3020 and enter
the passcode 1851310.
WARNING: The company relies upon litigation protection for
"forward-looking" statements.
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