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Gold/Mining/Energy : KERM'S KORNER

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To: Kerm Yerman who wrote (11560)	7/1/1998 4:38:00 PM
From: Kerm Yerman	Read Replies (1) of 15196

CREDIT REPORT / DCR Comments on Devon Energy's Merger Agreement CHICAGO, July 1 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) views Devon Energy's planned acquisition of Northstar Energy Corp. as a positive from both an operational and credit perspective. DCR rates Devon's implied senior debt 'BBB-' (Triple-B-Minus) and its preferred stock 'BB' (Double-B). Under the agreement, Devon will acquire Northstar, based in Calgary, Alberta, for about $565 million in stock and will also assume about $312 million in debt from Northstar. Devon will issue 0.227 share for each of Northstar's 68 million shares outstanding. The transaction also has a provision that allows Devon to pay as much as 0.235 share for each Northstar share if Devon's stock price falls below $32.95. The transaction will be accounted for as pooling of interests. The acquisition provides Devon with additional proven reserves of 550 billion cubic feet of natural gas and 36 million barrels ofoil and NGLs, all in Canada. In addition, Devon will get 1.6 million acres of undeveloped leases in Canada. The purchase nearly doubles Devon's natural gas assets and leaves the company with 1.2 trillion cubic feet of gas and 117 million barrels of oil after the acquisition. The planned acquisition is also positive from an operational viewpoint as Northstar's operations appear to complement Devon's existing Canadian operations. Devon will merge its existing operations in Canada into Northstar's operations, and Northstar's current management will operate the merged Canadian operations. After the acquisition is complete, Devon's assets will be split evenly between the United States and Canada. DCR plans to meet with Devon's management in order to complete a thorough review of the transaction and to evaluate the company's financial objectives. The priorities for the use of cash and management's acquisition strategy will need to be analyzed in order to assess its impact from a debt service perspective.

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