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Rumor mill grinding at top speed in Calgary’s oil patch about Alberta Energy, Pan Canadian Unexplained departure of PanCanadian Energy's CEO sets off speculation of a merger with Alberta Energy to create a C$20 billion super-independent
Gary Park PNA Canadian Correspondent
The oil towers of downtown Calgary are said to be within a handshake's distance of each other. Not quite whispering distance. Close enough to give gossip a chance.
But once in a while everyone seems to be completely stumped, which usually leads to whopping speculation, such as the current round of rumors that PanCanadian Energy Inc. and Alberta Energy Co. Ltd. — Canada's two largest independents — are negotiating a merger.
It all started with David Tuer, 52, who was president and chief executive officer of PanCanadian for eight years until he dropped a bombshell resignation, which was announced Oct 14.
But, just two days earlier, he had been publicly trumpeting his company's new independence from the Canadian Pacific conglomerate, which put its 85 percent stake in PanCanadian into the market on Oct. 3.
Tuer seized the moment to scoff at suggestions PanCanadian might be a takeover target.
“We have the financial strength to be a takeover company. And we are certainly looking for that opportunity,” he boasted to reporters Oct. 12. Yet, within 48 hours he stunned the industry by quitting for unexplained “personal reasons.”
Only a terse explanation from PanCanadian The company gave only a terse response, pointedly skirting the customary expressions of regret and offering no words of praise for the departed.
“If you want to know more about David, ask David,” suggested PanCanadian director Ken McCready.
During a third-quarter conference call Oct. 15, company executives flatly declined to answer questions about Tuer, which set the chat rooms crackling and analysts into a frenzy.
The Alberta Securities Commission briefly threatened to probe deeper until PanCanadian, two days after a regulatory deadline, filed a “material change report” that shed no further light on Tuer's sudden decision. That was apparently good enough for the regulator.
Then, on Oct. 30, Tuer was appointed chairman of the Calgary Health Region, one of 17 government-funded health authorities in Alberta — an unpaid post that will yield per diems ranging from C$146 for meetings lasting less than four hours to C$395 for meetings stretching beyond eight hours.
All in all, a dramatic change of lifestyle for Tuer who pulled in more than C$1 million in wages and bonuses last year.
At his swearing in to the health job, Tuer deepened the mystery, saying he made a “personal decision” as PanCanadian became more independent, his responsibilities changed and he had a “lot of time to think.”
For most analysts that wasn't good enough. Brian Prokop of Peters & Co. said that “unless you come clean, the market will give you grace for a while, then it will punish you.”
In fact, the market initially sliced 10 percent off PanCanadian's shares following Tuer's departure, then allowed the shares to recover.
Boardroom battle lost? But the conviction persists that Tuer must have lost a boardroom battle.
Why else would he walk from a company with a market capitalization of about C$11 billion, the largest among Canadian-controlled oil and gas companies, with the inherited jewel from Canadian Pacific of 6.5 million acres of petroleum-rich freehold land on southern Alberta, which accounts for half of its production and where it pays no government royalties?
Prokop, making the case that the “more disclosure the better,” said the industry is left with the feeling that PanCanadian is hiding something.
The consensus view is that Tuer had a losing showdown, possibly with PanCanadian chairman David O'Brien, although he insists “our relationship is cordial.”
Given analysts views that investment bankers would welcome a takeover bid for PanCanadian, street talk had focused on a belief that Tuer, in his determination to see PanCanadian succeed as a standalone company, may have refused to present a takeover offer to his board.
PanCanadian-AEC merger? Fueling that speculation is the prospect of a PanCanadian-AEC merger, creating a company with a market capitalization of C$20 billion, that would produce 300,000 barrels per day of oil and 2.5 billion cubic feet per day of gas, making it North America's largest gas producer.
By popular vote, AEC chief executive officer Gwyn Morgan would head up the new entity. Expansion-minded and canny, he has a stated goal of making AEC a “global super-independent” to rival Burlington, Apache or Anadarko.
In the last 18 months, he has expanded AEC's reach throughout North America, taking over McMurry Oil and Ballard Petroleum, two key operators in the U.S. Rockies; gained a foothold in the North Slope; and signed a farm-in deal with Conoco to explore deepwater prospects in the Gulf of Mexico.
With cash reserves and unused lines of credit of C$2.7 billion, AEC is seen by many analysts as positioned for a “major acquisition,” which puts PanCanadian squarely in the spotlight.
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