AGREEMENT / Petro-Canada & Ultramar Diamond Shamrock form Venture
MONTREAL, Jan. 6 /CNW/ - Ultramar Diamond Shamrock Corp. and Petro-Canada
jointly announced the signing today of a memorandum of understanding to form a
refining and marketing joint venture to serve customers in Canada and the
northern United States more efficiently and to reduce costs of the combined
operations. This joint venture will be in a strong position to meet
successfully the challenges of market globalization and compete effectively
with other Atlantic Basin refiners.
Petro-Canada President and Chief Executive Officer Jim Stanford and UDS
Chairman and CEO Roger Hemminghaus said, ''The joint venture will create a
leading refining, transportation and marketing entity in Canada, providing
quality products, superior service and convenience to our customers at the
retail, industrial and wholesale levels. We anticipate that future growth
projects will result in new opportunities for our shareholders, employees and
the communities in which we operate.
''For several years, the refining and marketing industry has worked hard
to improve its profitability. A combination of our operations in Canada,
Michigan and New England to take advantage of economies of scale in
transportation, refining, distribution and marketing systems is the best
avenue to provide high-quality products at competitive prices to consumers
while increasing value for shareholders. The net present value after tax of
the synergies and cost savings is estimated at $625 million (U.S. $456
million).''
The joint venture will operate as a Canadian general partnership.
Petro-Canada will contribute all its downstream assets, including refineries
at Edmonton, Montreal and Oakville, a nationwide marketing network, its
lubricants manufacturing facility in Mississauga, Ontario, its product
pipeline interests and its Portland-Montreal pipeline interest in eastern
Canada. Ultramar Diamond Shamrock will contribute its downstream operations
in Canada, in Michigan and in several New England states, including refineries
at St. Romuald, Quebec, and Alma, Michigan, along with approximately 1,700
marketing outlets. The joint venture will operate five refineries with a
daily rated capacity of 500,000 barrels of crude oil, operate approximately
3,500 retail outlets and provide heating oil to more than 300,000 customers.
In Canada, the joint venture will use the Petro-Canada brand as its primary
brand.
Stanford said, ''The joint venture with UDS is a significant step forward
in achieving Petro-Canada's vision of becoming the pre-eminent Canadian
integrated oil and gas company. The efficiencies of the joint venture in
eastern Canada and the northeastern United States, along with national
economies of scale, make this an excellent deal for Petro-Canada shareholders.
We expect the net present value after tax of Petro-Canada's share of currently
identifiable cost savings created by this joint venture will amount to
approximately $400 million (U.S. $292 million) and that the transaction will
increase the company's operating earnings in the first full year of
operations.''
''The joint venture will create significant value for our shareholders as
we integrate our Canadian and Michigan systems with Petro-Canada's,''
Hemminghaus said. ''Ultramar Diamond Shamrock gains geographic
diversification through shared control of a substantially larger and more
competitive business. UDS's share of identifiable cost savings created by the
joint venture is expected to have a net present value after taxes of about
$225 million (U.S. $164 million) and be accretive to operating earnings in the
first full year of operations, and help us to achieve our return on capital
employed goal of 12 percent by the year 2000.''
Such savings may be only the beginning as UDS, Petro-Canada and the joint
venture explore opportunities to add shareholder value through strategic
purchasing, petroleum supply and shared services. The joint venture will
provide a strong platform for growth within both Canada and the northern
United States. It will have strong cash flow to finance its growth on a
stand-alone basis.
Control of the joint venture will be shared. Petro-Canada will own 51
percent of the joint venture voting units and UDS will own 49 percent. The
economic interests in the joint venture will be held 64 percent by
Petro-Canada and 36 percent by UDS, based on the relative values of the
businesses each partner expects to contribute to the venture. Major decisions
require the approval of both partners. Petro-Canada and UDS will use
proportionate consolidation accounting to report their respective interests in
the joint venture's assets, liabilities, revenues and profits. There will be
principal offices in the provinces of Alberta, Ontario, Quebec and the state
of Michigan.
UDS President and Chief Operating Officer Jean Gaulin will serve as
chairman of the board of the partnership. Jim Pantelidis, who is currently
Executive Vice President in charge of Petro-Canada's downstream operations,
will be appointed President and Chief Executive Officer. In a joint
statement, the two said, ''We are very excited by the opportunity to increase
the efficiency of the petroleum refining and marketing industry in Canada and
to take advantage of attractive developments in our U.S. markets. Our people,
refineries and marketing outlets are among the best in North America, and we
expect that their performance will improve significantly over the next few
years. This will result in profitable growth, improved competitive position
and stronger returns. This joint venture will start from an annual revenue
base of approximately $8.5 billion (U.S. $6.2 billion) and we intend to make
it one of the strongest downstream entities in North America.''
To achieve the identified project synergies and cost savings, the joint
venture plans to operate its refining, transportation and marketing operations
on a regionally integrated basis and expects to divest a number of retail
sites in Quebec and Atlantic Canada over several years. One-time costs to
establish the joint venture will be recorded by each company once the
transaction closes.
Formation of the joint venture is subject to completion of due diligence,
definitive documentation, regulatory review and the approval of both the
Petro-Canada and Ultramar Diamond Shamrock boards of directors. Until
completion of regulatory review, including approval by the Government of
Canada's Competition Bureau, approval of definitive agreements and closing,
Petro-Canada and Ultramar Diamond Shamrock operations will continue to be run
separately. The transaction is expected to be completed by the spring of
1998.
Petro-Canada is one of Canada's largest oil and gas companies, operating
in both the upstream and downstream sectors of the industry. Its common
shares trade on Canadian exchanges under the symbol PCA, and its variable
voting shares trade on the New York Stock Exchange under the symbol PCZ.
Ultramar Diamond Shamrock is one of the largest independent refining and
marketing companies in North America. It trades on the New York and Montreal
stock exchanges under the symbol UDS. The corporation owns seven refineries
in the United States and Canada with a total throughput capacity of 650,000
barrels per day and has approximately 6,400 branded retail
gasoline/convenience merchandise stores. It also has growing petrochemicals
and home heating oil businesses.
This news release contains forward-looking statements that involve risks
and uncertainties and are intended to be covered by the safe harbor provisions
of the Securities Act of 1933 and the Securities Exchange Act of 1934.
PETRO-CANADA/UDS JOINT VENTURE
OPERATING RESULTS
Metric
Pro-Forma
Petro-Canada(1) UDS(2) Combined
Nine Twelve Nine Twelve Nine Twelve
Months Months Months Months Months Months
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
Petroleum product sales
(thousands of cubic metres per day)
Gasolines 21.5 19.2 16.0 15.2 37.5 34.4
Distillates 18.0 16.4 13.3 12.5 31.3 28.9
Other including
petrochemicals 8.8 8.1 4.5 4.9 13.3 13.0
---- ---- ---- ---- ---- ----
48.3 43.7 33.8 32.6 82.1 76.3
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
Crude oil processed
(thousands of cubic
metres per day) 46.0 45.0 28.3 30.2 74.3 75.2
Average refinery utilization
(per cent) 101 99 83 93 93 96
Daily rated refining
capacity at end of
period (thousands of
cubic metres per day) 45.4 45.4 34.0 32.5 79.4 77.9
Retail outlets at end
of period 1 813 1 765 1 713 1 743 3 562 3 508
U.S. measurement
Pro-Forma
Petro-Canada(1) UDS(2) Combined
Nine Twelve Nine Twelve Nine Twelve
Months Months Months Months Months Months
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
Petroleum product sales
(millions of U.S. gallons per day)
Gasolines 5.7 5.1 4.2 4.0 9.9 9.1
Distillates 4.8 4.3 3.5 3.3 8.3 7.6
Other including
petrochemicals 2.3 2.1 1.2 1.3 3.5 3.4
---- ---- ---- ---- ---- ----
12.8 11.5 8.9 8.6 21.7 20.1
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
Crude oil processed
(thousands of
barrels per day) 290 283 178 190 468 473
Average refinery
utilization (per cent) 101 99 83 93 93 96
Daily rated refining
capacity at end of period
(thousands of barrels
per day) 286 286 215 205 501 491
Retail outlets at end
of period 1,813 1,765 1,713 1,743 3,562 3,508
(1) Downstream operations only.
(2) Reflects only those operations of Ultramar Diamond Shamrock Corp.
that will be included in the joint venture. Results for Michigan
assets included pro forma. |
