More oil-patch players likely to disappear. Ulster and Ranger are among last independents
The Globe & Mail, Monday, April 10
By Mathew Ingram
Calgary -- In a kind of end-of-an-era doubleheader, two of Canada's oldest surviving independent oil companies are on the block: Texas-based Hunt Oil has bid $512-million for Ulster Petroleums, and Ranger Oil got a $945-million offer from tiny Petrobank Energy hours after saying it was "pursuing alternatives to maximize shareholder value." That's industry code for "make us an offer," and there will likely be plenty more to come.
You couldn't design a more perfect takeover environment than the one the oil patch is in right now. OPEC's production increase has stabilized the market, but oil prices are still relatively high. And the cash flow that has been pouring into companies over the past six months, from oil selling at $30 (U.S.) a barrel, needs to find a home. Meanwhile, despite strong industry fundamentals, some oil and gas stocks remain undervalued, making them easy prey.
Speaking of easy prey, it's possible that somewhere in the Canadian oil patch -- perhaps deep in the bowels of an oil-sands plant, or in a well-site trailer in Norman Wells, NWT -- there is someone who was surprised when Ranger put itself up for sale. But even that's a stretch. The fact is the company has been up for grabs for several years.
Fred Dyment, CEO of Ranger, has been running the senior producer since its charismatic founder Jack Pierce died in 1991. Mr. Pierce, a colourful character who occasionally showed up at the office in a military uniform, started the company in the 1950s, and made it a major player by grabbing a chunk of the Ninian oil field in the North Sea in 1974. Ranger soon became one of the leading Canadian oil companies operating internationally.
Mr. Dyment, an accountant, may have lacked Mr. Pierce's colourful personality, but he produced fairly solid, stable growth. Unfortunately, the market seemed to lose interest. After fetching close to $15 apiece in mid-1997, shares of Ranger got hit by the sliding oil price -- and the ill-advised acquisition of Elan Energy for $566-million -- and the stock never really recovered. It bottomed out at $4.25 last year, lower than it has been in 15 years.
In an interview in 1996, Mr. Dyment said that he looked at a list of the companies that made up the oil and gas subindex of the Toronto Stock Exchange in 1981, and "of the 57 companies, there are about 10 majors left . . . When it comes to independents, it's pretty much just us and Ulster Petroleums. I feel like the last of the Mohicans."
Now, both Ulster and Ranger are fighting takeover bids. Ranger's comes from a relatively tiny company, Petrobank Energy. Its offer consists largely of paper, but the company is backed by the former senior managers of Pacalta Resources, a successful medium-sized producer sold to Alberta Energy in 1999. And industry watchers say that the bidding for Ranger is only beginning -- several senior companies are rumoured to be interested.
Although Ulster doesn't have the colourful history of Ranger, or the foreign exposure, it has been around almost as long. It was founded in 1963 by Scottish-born Hugh Considine, and went public on the Toronto Stock Exchange in 1968. Current chairman Donne Traxel joined the company as president in 1977. The stock has been dropping since last fall, hitting $6.40 apiece in February -- lower than the shares have been since about 1993.
If Ranger and Ulster both disappear, the roster of independents that have been around for more than 15 years will be pretty thin. About the only sizable companies that qualify are Paramount Resources, which Clay Riddell (who still owns 48 per cent of the stock) started in 1975, and Petromet Resources, which was founded in 1982. Coincidentally enough, both companies often show up on lists of potential takeover targets.
The rest of the true independents are a younger crowd: Anderson Exploration was formed by J.C. Anderson in 1983 but didn't go public until 1988; Alberta Energy has been around since 1975 but was more or less controlled by the Alberta government until the 1990s; Gulf Canada and Canadian Occidental have only recently become independent, and Talisman Energy got its freedom only in 1993. Canadian Natural Resources, one of the new oil-patch stars, was founded in 1989 by Allan Markin and Murray Edwards.
The past few years have seen a number of former independents taken over by U.S. firms. Poco Petroleum, founded by Craig Stewart in 1979, was bought by Houston-based Burlington Resources last year, and Northstar Energy was acquired by Devon Energy of Oklahoma City in 1998, the same year Tarragon Oil & Gas was bought by USX-Marathon Group of New York.
Will this year see the start of another foreign selloff? All the ingredients appear to be there -- and Ulster and Ranger have started the bidding.
Readers can reach Mathew Ingram by fax at (403) 244-9809 or by e-mail at
mingram@globeandmail.ca
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