Total takeover trial

Total's Deer Creek Energy deal headed for court; New York activist investor says C$1.67 billion acquisition not ‘fair value

Gary Park

For Petroleum News

Whether or not France’s Total got a steal of a deal when it scooped up oil sands minor Deer Creek Energy last year is headed for court in Alberta.

New York-based activist investor Paulson & Co. is alleging Total did not pay “fair value” in the C$1.67 billion acquisition which gave it an 84 percent stake in the Joslyn oil sands project — a possible 100,000 barrel per day development.

Legal squabbling over the past year will be resolved by the Alberta Court of Queen’s Bench in a trial due to start on Sept. 18.

Total opened the bidding for Deer Creek with a friendly offer of C$25 a share, before adding another C$6 a share to fend off an unidentified rival.

Paulson, which controlled 8.4 million of Deer Creek’s 53.9 million shares, led those who declined to tender to Total’s offer, but the takeover was concluded in December with the backing of 82.4 percent of Deer Creek investors.

In court documents, Paulson claimed Deer Creek advised its shareholders in June 2005, just before Total launched its takeover attempt, that the Joslyn project carried an estimated value of C$6.7 billion, or C$140 a share, based on oil prices of US$40 per barrel.

In its statement of defense, Deer Creek attacked the Paulson dissenters as “hedge funds whose investment philosophy is short-term in nature and does not involve tying up capital for a long period of time.”

Total plans production beginning in 2010

Deer Creek said its investor presentation last year was based on the potential of a project that would require major capital spending and was still in the early planning stages

Total filed with regulators in February for approval of a phased development to achieve 50,000 bpd by late 2010 and 100,000 bpd by 2012-2013.

The long-term objective is 200,000 bpd by 2020 and could rise even more beyond that point, according to Total officials.

Enerplus Resources Fund, the remaining 16 percent partner in Joslyn, said in early August that Total’s best estimate for producing 100,000 bpd had been moved to 2013 from 2010-2011 because of “industry pressures from a significant number of competing” oil sands projects.

However, Total E&P Canada said that rather than delaying plans it was actually contemplating moving to full production of 100,000 bpd rather than proceeding in incremental stages. It said there would be advantages to completing both its bitumen mine and an upgrader, both targeting 100,000 bpd, at the same time.

Total E&P Canada President Michael Borrell told the Financial Post that although there were concerns about cost pressures his company was striving to achieve “an economic optimum development in a timely manner.”