Related Articles
Forward article link
Share PDF with colleagues

Back on the takeover trail

Gulf Canada Resources' president, Dick Auchinleck, is a licensed racing car driver, fond of hurtling around the Baja California desert in a dune buggy.

That image might leave the impression he is a clone of his predecessor, JP Bryan, the blunt-talking, high-flying Texan who was at the helm of Gulf Canada for three years and almost steered it into a ditch.

Bryan's whirlwind tenure included a C$1.9bn acquisition spree in 1997, swallowing the UK's Clyde Petroleum and Canada's Stampeder Exploration, and a doubling of Gulf Canada's debt to C$2.9bn.

But Bryan's visionary, flamboyant nature was too much for Gulf Canada's directors, who turned to long-time employee Auchinleck, also known as the 'mechanic', because of his skill at fixing corporate problems.

He immediately launched a C$850m attack on debt, unloading many of Bryan's purchases, while fending off constant rumours of impending bankruptcy and imminent takeover. As Auchinleck ruefully observed, the best poison pill for Gulf Canada was its mountain of debt.

Then, with speculation rife that Gulf Canada was still the next likely name to join the list of Canada's oilpatch missing (only nine of the top 32 producers in 1991 survive intact), Auchinleck stole a page from Bryan in early October.

Having paid down the company debt to C$1.7bn and racked up Gulf Canada's highest quarterly cash flow since it became an independent in 1987, he leapt back into the acquisition fray.

Following six months of on-and-off negotiations, Gulf Canada announced a friendly purchase of Crestar Energy, also high on everyone's list of takeover targets, for $2.3bn, including Crestar's C$565m debt.

The combined operations will catapult Gulf Canada into the ranks of North America's top 10 independents, with a market capitalisation of C$4.1bn, production of 278,000 boe/d (on a ratio of six-to-one natural gas to liquids) from reserves of 586m barrels of oil and 3.3 trillion cf of gas. Its land base in western Canada will more than double to 4.6m acres.

'Clearly, we're back in the growth phase, but we're going to do it in a very considered way ... one of the mistakes we made in the past was too many, too fast,' said Auchinleck.

Although conceding the deal could open the door to more acquisitions, he was adamant there will be no return to the free-spending days under Bryan.

Assuming shareholder approval, he plans to direct the new source of cash flow from Crestar's gas-dominated properties to fund longer-term opportunities and boost production to join the same league as its Canadian rivals, PanCanadian Petroleum, Alberta Energy, Talisman Energy, Canadian Natural Resources and Canadian Occidental (which is planning a name-change, to Nexen).

Heading Auchinleck's list of 'opportunities' are the Mackenzie Delta, where he has been the most bullish executive in forecasting gas production within five years; the Dutch sector of the North Sea, where Gulf Canada has reported five discoveries this year; and the company's Corridor and West Natuna natural gas projects in Indonesia. Crestar also contributes a recent C$142m purchase of a stake in Ecuador's prolific Oriente Basin.

Peter Linder, an analyst with Research Capital, said the purchase also helps Gulf Canada fend off potential acquisitors and increases its exposure to natural gas.

Dan Blanchard, an analyst with Salomon Smith Barney, agreed Gulf Canada is now a tougher takeover prospect. 'What they've done in the past couple of years is pretty sharp ... they've survived,' he said.

In the aftermath, Auchinleck also put on hold Gulf Canada's plans to sell its 46.7% interest in Petrovera Resources, a joint heavy-oil venture with PanCanadian that produces 32,000 b/d from leases on the Alberta-Saskatchewan border.

Unloading Petrovera would have contributed C$275m towards debt reduction, but Auchinleck said no offer has approached market value for assets expected to generate C$100m in cash flow this year.

Founded in 1906, as British American Oil Company, Gulf Canada has had a roller-coaster history as a subsidiary of Gulf Oil and Olympia&York Developments, reaching its peak from 1970 to 1974, as the pacesetter among Canada's four majors, and starting a decline in the mid-1980s after O&Y divested its refining and marketing assets, forcing the company to recreate itself as an independent upstream operator.

It floundered through much of the 1990s as O&Y declared bankruptcy in 1992 and a group of O&Y lenders gained control of 70% of the outstanding common shares, until Houston-based Torch Energy Advisers engineered a C$296m deal in 1994 that put Bryan in the chief executive's office and in hot pursuit of growth.

Gulf Canada's largest shareholder is now Southeastern Asset Management, a little-known investment management company based in Memphis, Tennessee, which declared earlier this year that it would take a more aggressive role in guiding the company. Since then it has scaled back its holding to 13.9% from 17.2%.

Also in this section
Clock ticking for Oxy
29 May 2020
Producer in race against time to generate funds needed to pay down mounting debts
IEA warns of investment chasm
29 May 2020
Energy funding poised to plunge as renewables fare better than fossil fuels
Different horses for the oil sands course
22 May 2020
Norway pulls funding from Canada’s heavy, sulphurous crude as Saudi Arabia expands its footprint