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Canada Rivals to Form New Oil, Gas Giant

Energy: PanCanadian and AEC are in merger talks to create the No. 1 independent producer, valued at $13 billion.

January 28, 2002|From Reuters

CALGARY, Alberta — PanCanadian Energy Corp. is buying Alberta Energy Co. in a share swap to create what they said Sunday would be the world's No. 1 publicly traded independent oil and gas exploration and production company, with a stock market value of $13.3 billion.

PanCanadian, already Canada's top explorer and producer, and AEC, the No. 2 player in that part of the industry, described the deal as a merger of equals that would bring together the highest oil and gas output and biggest reserves of all publicly traded independent energy firms.

The merged company, to be called EnCana Corp., would have debt and other liabilities valued at $3.9 billion.

The Calgary-based firms said Friday that they were in talks after sharp gains in the stock prices prompted the Toronto Stock Exchange to demand an explanation.

EnCana would supplant Houston-based Anadarko Petroleum Corp. as the top exploration and production player amid a slump in prices for both oil and natural gas. But the combined entity still would be smaller than the major oil companies that also refine oil and market gasoline, such as Exxon Mobil of the U.S. and BP of Britain.

The merged company would enjoy a commanding Canadian base, supporting efforts to compete globally and erase a stock market discount that the country's oil companies have suffered in comparison to U.S. rivals, they said.

A PanCanadian-AEC merger would follow last year's flood of deals in which big Canadian producers, such as Gulf Canada Resources and Anderson Exploration, were taken over by U.S. rivals.

"Why shouldn't two Canadian companies come together and build up a powerhouse?" AEC Chief Executive Gwyn Morgan said at a news conference. "It's not a question of waiting for someone to come and see if they want to buy either one of us. This is a chance to build something that's stronger and better than anyone else can build."

Under the deal, Alberta Energy stockholders would get 1.472 PanCanadian shares for each of their own shares. PanCanadian holders would own about 54% of EnCana and AEC's investors the remainder. The ratio is based on the average of the closing price for the 10 trading days ended Jan. 23.

Morgan would be chief executive of EnCana, and PanCanadian CEO David O'Brien, who in October completed the breakup of the company's former parent, Canadian Pacific Ltd., would be nonexecutive chairman. PanCanadian became widely held after it was spun off, sparking talk that it could be a bid target.

EnCana's top management and board of directors would have equal representation from both companies, the executives said.

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