"This acquisition adds a superb new core asset to our portfolio," said Petro-Canada President and Chief Executive Officer, Ron Brenneman. "It's a perfect fit with our international growth strategy, since it builds on our existing base of operations in Northwest Europe. Buzzard is well timed to add production in the medium term, coming on-stream ahead of our longer-term growth opportunities."
Petro-Canada will purchase Intrepid Energy North Sea Limited, whose major asset is the 29.9 percent working interest in Buzzard. Original oil in place for the field is estimated to be about 1.2 billion barrels and Petro-Canada currently estimates that recovery will be in the order of 550 million barrels of oil. The Buzzard field is operated by EnCana (U.K.) Limited. Adjacent acreage with exploration potential is included in the transaction.
"This is a value-adding transaction for Petro-Canada, consistent with our disciplined approach to investment," Mr. Brenneman said. "The UK North Sea is an excellent place to do business, and we expect this asset to continue our history of profitable production in the region. We see technical and operational upside at Buzzard and we believe this field will continue the region's track record of big fields getting even bigger over time."
To capture the opportunity offered by today's high oil price environment and to ensure value-adding returns even in the event of a sharp drop in oil prices, Petro-Canada has hedged a significant portion of its share of Buzzard's early production at the market's projected future oil price (current forward strip price).
The company will be acquired in an all-cash transaction that will be financed from cash reserves and existing credit facilities. Following this transaction, Petro-Canada's net debt to cash flow ratio will be about 0.8 times and net debt to debt plus equity will be approximately 25 percent. These ratios are well within company targets and consistent with industry peer levels. Petro-Canada will retain its financial capability to undertake further transactions through its strong balance sheet. Petro-Canada expects that its share of the capital required to bring the field to first oil, about Cdn $790 million, will be funded from cash flow generated by the corporation.
The purchase price of US$840 million is subject to closing adjustments and transaction costs. Petro-Canada expects the transaction to close by the end of the second quarter 2004. The transaction is subject to receiving approval from the shareholders of Intrepid Energy North Sea (Holdings) Limited, the parent company owning Intrepid Energy North Sea Limited. Shareholder approval is anticipated in June, 2004. Petro-Canada managed the acquisition internally with external advice from Deutsche Bank (deal support), Lovells (legal) and Reservoir Management Limited (reservoir engineering consultants).
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