Malaysia's Petronas to Buy Partner Progress Energy for $5.5 Billion
Krugel, Lauren, The Canadian Press
Malaysian company to buy Progress Energy
CALGARY - Malaysia's state-owned oil and gas company is offering $5.5 billion in a friendly deal to buy Progress Energy Resources Corp., its Canadian partner in northeastern B.C. gas fields, with an eye to exporting natural gas off the West Coast.
Petronas said Thursday the deal will strengthen its position as a supplier of liquefied natural gas -- gas that has been chilled into a liquid state, enabling it to be shipped overseas by tanker.
Progress Energy (TSX:PRQ) chief executive Michael Culbert said his company requires a big investment to get into the international LNG markets.
"Petronas offers the size and scale that will enable our company to continue to grow and not be limited by the same cash flow challenges faced by many producers in the North American natural gas market today," he said in a release.
The two companies have already been working together on a project to tap natural gas in northeastern British Columbia's Montney region and had been studying shipping it abroad as LNG.
The companies announced along with the deal that they've selected Prince Rupert, B.C., for the location of its proposed LNG terminal.
Petronas is offering $20.45 per share for the Calgary-based company.
That's 77 per cent above the price of Progress Energy stock at the end of trading Wednesday on the Toronto Stock Exchange. Progress shares soared after the announcement, closing up $8.50, or 74 per cent, at $20.05.
There's a lot of potential upside for Petronas, based on the thousands of wells Progress has yet to drill and the reserves that it has yet to book on undeveloped land, said Brook Papau, with ITG Investment Research in Calgary.
"I think there's a little bit of sticker shock maybe on the price, but I find that pretty justifiable and a pretty fair deal from both sides," said Papau, who a little over a month ago predicted a take-out value of $20.13 per share -- not far off from the Petronas offer.
He said the deal is more about Petronas "locking up the resource" for itself than coming to the rescue of a company struggling with low natural gas prices.
"Progress never really got hammered with everyone else when natural gas pricing started going down," said Papau, adding the joint-venture deal already in place with Petronas helped on that front.
The Progress board recommended shareholders accept the Petronas offer, which includes a commitment to keep all of the Canadian company's employees.
"It's an unbelievable bid, and yet it's not surprising," said David Taylor, chief investment officer of Taylor Asset Management. …