Petro-Canada to Acquire Prima Energy

Petro-Canada, through a wholly owned subsidiary, has entered into an agreement to acquire all of the outstanding shares of Prima Energy Corporation of Denver, Colorado, for a cash price of US$39.50 per share. This represents a total acquisition price of US$534 million (C$ 719 million). Prima has no debt and is expected to have approximately US$60 million in cash at closing.

"The Prima acquisition is an excellent fit with our long-term strategy to sustain and expand our core North American natural gas business," said Petro- Canada President and Chief Executive Officer Ron Brenneman. "Prima has an extensive land position and strong capability in unconventional gas production, offering Petro-Canada an important new footprint and an entry into the fastest growing segment of continental natural gas supply."

Prima Energy has established a track record of growing natural gas production from the US Rockies region, largely through developing unconventional gas reserves. Since 1994, Prima has increased production by 11% per year, to current levels of 55 million cubic feet per day of natural gas equivalent before royalties. Current production comes largely from the Powder River and Denver-Julesburg basins. Approximately 40% is coal bed methane and the remainder comes mostly from tight gas reservoirs.

The company also has an extensive undeveloped acreage position and 1,600 drillable locations identified. In addition to acreage in the Powder River and Denver-Julesburg basins, Prima's 360,000 undeveloped acres include positions in the Green River, Uinta and Wind River basins. Petro-Canada expects production to double by 2007.

Prima's published 2003 year-end reserves, converted by Petro-Canada to a before-royalties basis, were 152 billion cubic feet of natural gas equivalent of proved reserves and 552 billion cubic feet of natural gas equivalent of proved plus probable reserves. Prima's estimated proved and probable reserves were audited by Netherland Sewell & Associates Inc., independent petroleum engineering consultants. The reserves have also been reviewed by Sproule Associates at Petro-Canada's request.

Petro-Canada will direct the operations of the company from an office in Denver, which will be staffed principally by Prima's existing management and staff. "Prima's strong management team and experienced employees are a key element of this acquisition," Mr. Brenneman said. "I welcome them to Petro- Canada and look forward to working together in the future to strengthen our North American natural gas business. We see potential here not only to develop the Prima land base, but also to expand that position and bring the value of Prima's expertise to our core Western Canada operations in the future."

Petro-Canada intends to finance this acquisition with a US$400 million fully underwritten credit facility, provided by BMO Nesbitt Burns, and existing committed credit lines. Following this transaction, Petro-Canada's net debt to cash flow ratio will be about 1.0 times and net debt to debt plus equity will be approximately 30%, including the effect of the previously announced Buzzard acquisition. 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.

The boards of directors of both Petro-Canada and Prima have unanimously approved the transaction. The Prima board of directors is recommending that shareholders of Prima accept the offer. Prima directors, senior executives and a principal shareholder, holding approximately 21% of the outstanding shares, have agreed to tender their shares into the offer, which is expected to close in late July 2004. Petro-Canada's offer to purchase is subject to the tender of a majority of Prima's outstanding common shares on a fully diluted basis. The transaction will also be subject to regulatory clearance and other customary conditions. The merger agreement provides for a break-up fee, payable under certain circumstances to Petro-Canada, of approximately US$18 million.

BMO Nesbitt Burns has acted as exclusive financial advisor to Petro- Canada on the transaction.