Canadian Natural Resources and Rio Alto Plan To Merge

Canadian Natural Resources Limited and Rio Alto Exploration Ltd. jointly announced that the Board of Directors of Rio Alto have entered into a merger agreement with Canadian Natural, whereby Canadian Natural will acquire all of the issued and outstanding shares of Rio Alto following a distribution to Rio Alto's shareholders of all of Rio Alto's international operations pursuant to a Plan of Arrangement to be approved by the Rio Alto shareholders. In commenting on the proposed merger, Rio Alto President and Chief Executive Officer Richard Cones stated "This merger represents a great opportunity for the shareholders of both organizations. The combination of Canadian Natural's strong balance sheet and larger, more balanced asset base with Rio Alto's significant development potential in Northwest Alberta will allow Rio Alto shareholders to realize the development of these properties irrespective of the commodity price cycle. In addition, it will allow Rio Alto shareholders to participate in Canadian Natural's significant near, mid and long term growth potential." Allan Markin, Chairman of Canadian Natural, commented "Rio Alto has done an excellent job of accumulating a large undeveloped land base and infrastructure in Northwest Alberta. This asset represents a large, high-quality operated core area upon which they have an extensive geophysical database. As part of a larger, more balanced company, the significant development potential of this new core area can be more efficiently optimized by Canadian Natural."

Under the Plan of Arrangement, shareholders of Rio Alto will receive for each share of Rio Alto held, at the election of the holder, $18.10 in cash, subject to an aggregate maximum of $850 million cash, or 0.3468 of a common share of Canadian Natural, subject to an aggregate maximum of 12.270 million common shares of Canadian Natural. Based on 78.625 million fully-diluted common shares of Rio Alto and Rio Alto's net total debt of $972 million, the transaction is valued at approximately $2.4 billion. In addition, under the Plan of Arrangement, shareholders of Rio Alto will receive for each share of Rio Alto held one share in a new public company ("Rio Alto International") to be formed under the Plan of Arrangement. Rio Alto International will own all of Rio Alto's assets located outside of Canada. Under the Plan of Arrangement the shares of Rio Alto International will have a value of $1.90 per share, which approximates the book value of the Rio Alto International assets and will correspond to the value of shares of Rio Alto International that Canadian Natural will subscribe for concurrently with the closing of the Plan of Arrangement.

Rio Alto International will hold all of Rio Alto's South American operations, which include assets in the Oriente Basin of Ecuador which currently produce approximately 7,500 barrels of oil per day and additional assets in the San Jorge Basin of Argentina which currently produce approximately 1,800 barrels of oil per day. Rio Alto International will be capitalized with the issuance of approximately 78.625 million shares to be distributed under the Plan of Arrangement to Rio Alto shareholders and a further 8.3 million shares to be issued to Canadian Natural at $1.90 per Rio Alto International share for a total cash consideration of $15.8 million. The Board of Directors of Rio Alto International will consist of the five directors that presently constitute the Rio Alto Board and Richard Cones and Bob Shaunessy will each be a Managing Director of Rio Alto International. Upon completion of the Plan of Arrangement, Rio Alto International will have no long-term debt and will have working capital in excess of $20 million which will include $15.8 million received from the issue of Rio Alto International shares to Canadian Natural. This working capital and the continuing cash flow from operations will provide Rio Alto International with sufficient financial resources to continue to aggressively exploit its assets, particularly those in Ecuador.

This transaction solidifies Canadian Natural's position as the second largest natural gas producer in Canada and moves Canadian Natural up to the fourth largest (previously sixth largest) independent producer of natural gas in North America, with production, after completion of the Plan of Arrangement, estimated to be 1.5 billion cubic feet per day. The transaction will increase Canadian Natural's natural gas exposure to 55% of its total production base on a barrel of oil equivalent basis while at the same time providing natural gas development opportunities in a new core region for Canadian Natural in Northwest Alberta. Additional value will be created under the Plan of Arrangement by integrating Rio Alto's highly skilled technical staff into Canadian Natural's operations, as both companies have similar business cultures.

As a result of the merger, it is estimated that Canadian Natural's 2002 cash flow per share will be 10% higher than previously estimated, while net earnings per share will approximate the net earnings per share previously estimated. Canadian Natural expects to produce in the range of 1,500 to 1,560 million cubic feet per day of natural gas during the second half of 2002. This represents approximately 12 thousand cubic feet per day of production for each common share of Canadian Natural. Production will be concentrated in four core areas in western Canada. The South Alberta area produces 157 million cubic feet per day from low-risk shallow producing wells. The North Alberta region is a composite of the Canadian Natural lands which produced about 365 million cubic feet per day from low-risk multi-zone structures and a similar core area from Rio Alto that produces about 150 million cubic feet per day. Rio Alto's Northwest Alberta area includes 284 million cubic feet per day of production from reservoirs with multiple productive zones. Finally, Canadian Natural's Northeast British Columbia/Northwest Alberta region produces about 535 million cubic feet per day and is characterized by medium risk, high productivity wells and high-risk high-impact deep exploration. This region also contains Canadian Natural's centerpiece Ladyfern asset. Two additional Ladyfern look-a-like structures are currently being drilled and one additional structure will be drilled during the third quarter. Based on the encouraging results of the first quarter 2002 drilling program, a further five exploration wells are planned for 2003 winter drilling.


Our Privacy Pledge

Most Popular Articles

Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours