IN THE NEWS / Devon Energy Takes Over Northstar Energy, Looks For More
Newly merged Northstar Energy and Devon Energy are poised for an oil and gas properties buying binge, Northstar chief executive John Hagg said Thursday.
Hagg commented after shareholders of Calgary-based Northstar approved a friendly $1.3-billion takeover by Oklahoma-based Devon.
The combined company will be among the top 15 North American oil and gas independents. It will continue to operate under the Northstar name in Canada and as Devon in the United States.
"We expect to complete a transaction that will be announced by the end of this month in the $100-million size," said Hagg, who called the merger an exciting new chapter in Northstar's development.
"And I think the opportunities are going to get better in the weeks ahead."
He expects that as the Amoco-BP merger and Exxon-Mobil deals shake down there will be a bevy of assets available for companies like Northstar-Devon.
The company already has extensive holdings in northeastern British Columbia -- where it is jointly working with Amoco on a significant discovery -- and north-central Alberta.
"Northstar had a little bit too much debt to really execute and exploit the opportunities that they have," said Larry Nichols, Devon's chief executive officer.
"So you bring Northstar's exploration exposure in Canada with Devon's balance sheet and both sides win."
Nichols said the merged company's diversified energy assets will help it grow and will cushion the blow of plunging world oil prices.
He also expects to cash in on the expected growth of natural gas markets in the United States.
"We're weighted towards gas and we have a long reserve life, which puts us in a stronger position to be able to truck on through these downturns."
The merger is the latest in a spate of American acquisitions of Canadian energy companies.
Analysts say low world oil prices and a weak Canadian dollar have made smaller Canadian energy companies bargains for bigger American players.
Other takeovers in the Alberta oilpatch have involved Archer Resources, Norcen Energy, Tarragon Oil and Gas and Chauvco Resources.
Northstar's Hagg said further consolidation is a fact of life as all sectors of the North American economy become more tightly intertwined.
"North American gas markets are now so integrated," he said, and companies are "not worried about the 49th parallel; they're just worried about doing the right transaction."
The current distressed oil market offers "incredible opportunities for a company that has a good strong balance sheet, both to do drilling and acquisitions," said Devon's Nichols.
"There's financial weakness in both countries; companies are over-leveraged and they don't have the cash flow, with low oil prices.
"There are companies that have to dispose of or farm out some of their own quality exploration programs."
Nichols added that the wider dynamics of the industry point to more mergers.
"When Mobil says $72 billion is too small for them to be effective and Amoco says $52 billion is too small for them, it makes the small guys really have to consolidate."
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