MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING FRIDAY, MAY 29 1998 (3)
TOP STORIES
Marathon plans Tarragon merger
The Financial Post
The quiescent merger market in the Canadian oilpatch was enlivened Friday with Marathon Oil Co.'s plans for a $950-million takeover of Tarragon Oil & Gas Ltd.
The proposed purchase by Marathon, a Houston-based integrated oil company, of the Calgary-based intermediate is the latest in a string of deals this year in which U.S. firms have bought into Canadian companies.
The buyer is offering $14.25 cash or shares of equivalent value in a wholly owned Canadian subsidiary of Marathon that can be exchanged for common shares of the parent company, USX-Marathon Group. No more than 90% of the final price will be issued as exchangeable shares.
Bill Ryder, a spokesman for Marathon, said the company left Canada in 1984, but has been looking to return for the past two years.
"It is a perfect fit because Marathon was in every major gas producing basin in North America except Canada," he said. "We think this is a good deal for both sides."
The bid is a 39% premium to Tarragon's $10.25 share price when its stock (TN/TSE) was halted before Friday's merger announcement. Shares of USX-Marathon (MRO/NSYE) were unchanged at US$35.
Officials from Tarragon and Marathon were not available for comment.
Analysts praised Tarragon's management for getting such a sweet offer. "It's a great price," said Al Knowles, a Calgary analyst with Canaccord Capital Corp. "I think they've done a really good job of negotiating for their shareholders."
David Stenason of Gordon Capital Corp. in Montreal doubted rivals will be able to come up with a better bid. "This is a knockout punch, so I would be surprised if anyone else will match their price."
Marathon is part of a huge conglomerate and can afford to wait until prices recover for heavy oil, which forms a large component of Tarragon's crude production, said Andrew Hogg, analyst with First Marathon Securities Ltd. in Calgary.
The deal is subject to a number of conditions. Shareholders will vote on the proposal at a meeting expected in August. If the merger does not go ahead, Tarragon will pay a breakup fee of $30 million.
More on Tarragon Acquisition
Reuters
USX-Marathon to buy Canada's Tarragon Oil & Gas
Canada's Tarragon Oil & Gas Ltd. said on Friday it agreed to a friendly merger with USX-Marathon Group in a C$1.1-billion deal that extends a cross-border shopping spree by U.S. oil companies.
Calgary-based Tarragon -- which only last month acquired most of the Canadian assets of Unocal Corp. -- said its shareholders could accept either C$14.25 in cash or stock in a Canadian subsidiary of USX's Houston-based Marathon Oil Co. unit in exchange for each of their shares.
The company said its board of directors had approved the transaction and regulatory and shareholder approval would be sought by August. Tarragon agreed to pay Marathon a break fee of C$30 million if the deal fails to go ahead as planned.
Following the recent C$308 million transaction with Unocal, completed in April, the California-based energy company held 27 percent of Tarragon's shares as well as a C$100 million debenture. It also gained three seats on Tarragon's board.
Unocal spokesman Barry Lane said his company had yet to review the offer and could not say whether it was supportive.
Besides the transaction's C$1.1 billion of equity, Marathon agreed to assume Tarragon's nearly C$500 million of debt.
Tarragon's stock price had not fared well after the Unocal deal was first announced in February. It has traded mostly below C$10 since the announcement, down from a year-high of C$17.60. The shares traded on Friday as high as C$10.25 before being halted on the Toronto Stock Exchange.
The company's exposure to depressed Canadian heavy oil prices has been blamed for its lackluster performance, despite a reduced reliance on heavy crude markets with the addition of the gas-rich Unocal assets.
USX Corp. Chairman Thomas Usher said the acquisition would increase Marathon's global oil and gas reserves by 20 percent and provide a spate of drilling opportunities.
"Tarragon provides us with a very strategic fit in our growth strategy and will enable us to establish a strategic platform for future growth in one of North America's most attractive gas basins," Usher said in a statement.
The Canadian firm currently produces 210 million cubic feet of natural gas and 21,000 barrels of oil and gas liquids a day. Its proven net reserves total 727 billion cubic feet of natural gas, 55 million barrels of light oil and gas liquids, and 84 million barrels of heavy oil.
It is one of dozens of mid-sized Canadian oil and gas producers that have experienced major cuts in earnings and cash flow as a result of depressed crude oil prices and are deemed to be vulnerable to takeovers by U.S. oil concerns. Tarragon recently reported first quarter net earnings of C$450,000 or C$0.01 a share, down 95 percent from the year earlier period. Cash flow, meanwhile, slid 45 percent to C$22 million or C$0.39 a share.
Wilf Gobert, analyst with Calgary-based brokerage Peters & Co. Ltd., said he believed the the deal represented full value for Tarragon shareholders, especially when Canada's energy sector is reeling from low oil prices.
"You almost wonder whether the Unocal deal didn't just sort of create a more attractive entity for a buyer," Gobert said. "Tarragon by itself was in a bit of a tough position given all of its heavy oil with what has happened to prices."
Several U.S. oil companies, attracted by a strong outlook for the Canadian natural gas business and favorable currency exchange rates, have made large acquisitions in Canada over the past eight months.
They include Pioneer Natural Resources Co. , which bought Chauvco Resources Ltd. for C$1.3 billion, Union Pacific Resources Group Inc. , which absorbed Norcen Energy Resources Ltd. for C$3.7 billion, and Dominion Resources Inc. , which took over Archer Resources Ltd. for C$183 million.
As Reported By The Globe & Mail
USX-Marathon bids for Tarragon
U.S. energy giant offers $1.03-billion; Calgary firm agrees to $30-million breakup fee
Saturday, May 30, 1998
U.S. energy giant USX-Marathon Group has offered $1.03-billion for Calgary-based Tarragon Oil and Gas Ltd. in the latest shopping trip into Canada's oil patch by a U.S. company.
Under the deal announced yesterday, USX-Marathon is bidding $14.25 a share for all of Tarragon's outstanding stock, offering shareholders either cash or shares of the Houston-based suitor.
Tarragon has agreed to pay a breakup fee of $30-million to the U.S. conglomerate, whose diverse holdings include steel and oil assets, if the transaction collapses.
"It's not a done deal, but it would cost somebody a lot of money to bust it up," said Gordon Currie, an analyst with Canaccord Capital Corp. in Calgary.
Tarragon's stock price has been languishing because of depressed commodity prices, especially for heavy oil. Its shares climbed 45 cents to $10.25 yesterday on the Toronto Stock Exchange, before being halted for the announcement.
Tarragon would become part of USX-Marathon's subsidiary, Marathon Oil Co. of Houston, assuming Tarragon shareholders approve the deal at a meeting in August.
The offer surprised industry observers because Tarragon just wrapped up a transaction in mid-April with Unocal Corp. of Los Angeles.
That deal gave Unocal a 28.7-per-cent stake in Tarragon for $208-million. At the time, Tarragon's shares hovered at about $10 a share.
Unocal spokesman Barry Lane declined to comment on whether Unocal is prepared to enter a bidding war to scoop up all of Tarragon or simply tender to the offer.
"We haven't had an opportunity to explore or examine the offer."
Unocal also received a $100-million subordinated debenture issued by Tarragon as part of the deal between the two companies in April.
In return, Tarragon acquired some of Unocal's Canadian production assets, mostly light oil and natural gas holdings in Alberta and British Columbia.
"A lot of the rationale for the Unocal deal was to diversify Tarragon's asset base to minimize the heavy oil exposure," Mr. Currie said.
In the past seven months, average benchmark prices for heavy oil in Alberta have plunged 46 per cent to $13 a barrel. The heaviest grades of oil are fetching about $5 a barrel.
Even though Tarragon's heavy oil reserves dropped to 35 per cent of its total from 46 per cent after its transaction with Unocal, Tarragon's stock price stayed at about $10 -- well off its 52-week high of $17.65.
Tarragon's board has recommended acceptance of USX-Marathon's bid, a 39-per-cent premium to Tarragon's share price before trading was halted on the TSE yesterday.
USX-Marathon has tentatively capped the share-swap portion of its offer to 90 per cent of the $1.03-billion bid. Tarragon shareholders will also be entitled to receive stock in a Canadian subsidiary that would be convertible into USX-Marathon shares.
If USX-Marathon acquires Tarragon, it would join the growing number of U.S. energy companies investing in Canada's oil and gas sector.
Favourable currency exchange rates for U.S. firms and slumping share prices of Canadian takeover targets are among the factors contributing to the avid interest from U.S. suitors, industry observers say.
In the past six months, major takeovers have included: Pioneer Natural Resources Co. of Irving, Tex., buying most of Calgary-based Chauvco Resources Ltd. for $1-billion, and Union Pacific Resources Group. Inc. of Fort Worth, Tex., acquiring Calgary-based Norcen Energy Ltd. for $3.7-billion.
Oilfield Could Dwarf Hibernia
The Evening Telegram
Gulf Canada could be sitting on a black gold mine off the south coast with potential reserves that could lead to the development of several production sites, The Evening Telegram has learned.
Just how much oil and gas the company's seismic work has uncovered is not known, but it's believed the 2.1 million hectares of explorable property will yield far more than the potential one billion-barrel Hibernia oilfield.
"We believe the block is very prospective," said Dennis Martin, Gulf's spokesman in Denver, Tex. Martin said a new look at old seismic data has given the company the encouragement to arrange for a larger seismic program this summer. Drilling could start as early as 2000. Martin cautioned that drilling is the key to determining the area's potential, but seismic work indicates there could be "encouraging" structures in the area.
"I can confirm Gulf is extremely excited about that part of the offshore oil and gas structure that resides in the Newfoundland territory off our coasts," Mines and Energy Minister Chuck Furey said Friday. "I think the sleeping tiger has been on the south coast and I think that tiger is about to wake up and roar.
"Gulf is extremely excited about the seismic work that was done a number of years ago and there may well be Hibernia-like structures in that zone, but that's for the company to do more exploration on." Furey said he and Premier Brian Tobin had "some very good meetings in Houston, Tex., with the senior people from Gulf" about three weeks ago.
"I can confirm for you that they've agreed . to come to Newfoundland probably in the next three or four weeks to lay out their plans for the future of that particular area," he said.
Gulf first availed of 60 exploration permits in the zone in 1967. That same year, Mobil Oil Canada secured 31 permits in the south coast area to explore 1.3 million hectares. In 1971, Texaco purchased six permits to explore 276,000 hectares of offshore property. Texaco has since passed its south coast exploration rights over to Imperial Oil.
A boundary dispute with St-Pierre-Miquelon forced a moratorium on exploration off the south coast for a time. However, the dispute was settled in 1992 when France was given control of a 10 by 200-mile economic zone extending south of the islands. About 90 per cent of Gulf's exploration property lies within the Newfoundland territory, the remainder belongs to France.
France recently gave Gulf the exclusive right to explore its economic zone, but insisted the company drill a well within three years, much sooner than the industry standard of five years. There's a strong indication there may be vast quantities of oil and gas within the zone. "If there were a major discovery in that area, the overlapping incidence between Newfoundland and France will be rectified through a sharing arrangement, as is done in other parts of the world," Furey said.
Nova Scotia, meanwhile, has thrown a wrinkle into the future development of the area by unilaterally drawing a boundary line that cuts through a small southern section of the Gulf location that Newfoundland claims.
This province has never recognized the line, Furey said.
Newfoundland and Nova Scotia are trying to settle the disputed zone. But provincial officials maintain that maritime law will prove there's no basis for Nova Scotia's claim. Both Furey and Gulf Canada officials say there shouldn't be any problem developing oil reserves that may cross the Newfoundland/France boundary.
But Gulf has no intention of exploring the southernmost section of its property until there's a decision on the disputed land between Newfoundland and Nova Scotia.
Bow Valley Energy expands North Sea operations
Canadian Press
Bow Valley Energy Ltd. is expanding its oil and gas operations in the North Sea.
The Calgary company announced today its wholly owned British unit has struck an agreement in principle to buy most of the operating licences of DSM Energy (UK) Ltd. in the United Kingdom.
No purchase price was announced on the deal, slated to close at the end of June.
The assets being bought by Bow Valley include a 4.2 per cent interest in the Claymore field, with estimated remaining reserves of 100 million barrels of oil equivalent, and 20 per cent of the Durward and Dauntless fields that now produce about 25,000 barrels of oil a day.
Other licences bought from DSM are located in the East Yorkshire region of Britain, and the rest are off the British coast. The deal is conditional upon regulatory approval, joint venture agreements and the sale by DSM of all its other energy interests in Britain.
Bow Valley said its net production from the Claymore field, which began producing in 1977, will be more than 1,800 barrels a day after today's deal. In 1994, Bow Valley's predecessor company. Bow Valley Energy Inc., was taken over by Talisman Energy of Calgary in a $1.8 billion deal.
Bow Valley Ltd. was formed in 1996 to acquire, explore and develop oil and gas properties exclusively outside Canada. The company has interests in the United Kingdom and has signed a service contract to develop the Balal oilfield off the coast of Iran in the Persian Gulf.
Bow Valley Ltd. shares rose eight cents to $1.28 on the Toronto stock exchange today.
Solv-Ex Oilsands Leases Turned Over
Sun Media
The oilsands leases controlled by Solv-Ex Corp. officially switched to new owners yesterday, clearing the way for a project which could cost billions of dollars to construct.
A court appeal period regarding the former Solv-Ex leases has expired, according to releases from partners Koch Oilsands L.P. and United Tri-Star Resources Ltd.
Koch, the operator and majority owner, is aiming for 2004 for completion of a 60,000- to 90,000-barrel-per-day project.
In comparison, Suncor Energy Inc. now produces 85,000 barrels a day and plans a $2.2-billion expansion to increase to 210,000 per day by 2002.
Koch spokesman Tammy Sauer would not confirm or deny a reported $1-billion pricetag for the oilsands project. "We're not releasing specific numbers," said Sauer from Koch's Calgary offices.
"We're not denying it. It didn't come from us."
Koch will now go through an internal pre-feasibility study to determine the best approach for Athabasca leases 5 and 52, about 90 km north of Fort McMurray.
Solv-Ex was founded in 1980 to develop experimental oil and mineral extraction technology.
The New Mexico-based company began construction of an $80-million US plant on the leases in 1996, but wound up under court protection from bankruptcy in both the U.S. and Canada.
Koch and UTS said courts on both sides of the border have given final clearance to previously announced agreements.
Union Pacific Resources sells Superior units
Union Pacific Resources Group Inc. said Friday its wholly owned Canadian subsidiary, Union Pacific Resources Inc., has sold 4.57 million units of Superior Propane Income Fund for US$47 million.
The company said in a statement it also sold its rights under a management agreement between the company and Superior Propane, along with an administration and advisory agreement between the company, Superior Propane and Superior Propane Income Fund.
The purchaser of both the units and the agreement rights is Superior Management Services Limited Partnership, Union Pacific said.
The Superior Propane rights were owned by Norcen Energy Resources Ltd., which Union Pacific Resources acquired earlier this year.
U.S. Rig Count Falls 33 to 822.
In Canada, Rig Count Increases.
NEW YORK - The number of rigs exploring for oil and natural gas in the United States stood at 822 as of Friday, down 33 from the previous week, and down from 961 a year ago, oil services firm Baker Hughes Inc. said Friday.
The number of rigs drilling on land fell 31 to 663, while rigs working offshore fell one to 133. The number of rigs active in inland waters fell one to 26.
Among individual states, the biggest changes occurred in Texas, down by 16; in Louisiana, down five; and in New Mexico and Wyoming, both down by four.
The Gulf of Mexico rig count remained at 132. The number of rigs searching for gas fell 32 to 551, the number of rigs searching for oil remained at 269, and the number of miscellaneous drilling projects fell by one to two.
There were 218 rigs drilling directionally, 42 drilling horizontally and 562 drilling vertically.
In Canada, the number of working rigs rose by 47 from the previous week, to 201 vs. 257 a year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
Separately, there were 166 rigs under contract in the U.S. Gulf as of May 29, up one from the previous week, Offshore Data Services said.
The utilization rate for rigs working in the Gulf, based on a total fleet of 173, was 96 percent.
The number of working rigs in the European/Mediterranean area fell one to 109 rigs under contract out of a total fleet of 113, a utilization rate of 96.5 percent.
The worldwide rig count fell four to 578 out of a total fleet of 609, with a utilization rate of 94.9 percent.
|
