El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Announces Agreement to Acquire Canada's Velvet Exploration LTD.
HOUSTON, TEXAS, June 14, 2001ŚEláPaso Corporation (NYSE:
EPG), through a wholly-owned Canadian subsidiary, today announced it has entered
into an agreement to acquire Canadian-based Velvet Exploration Ltd.
(Toronto:VLV) for C$8.15 per share in cash for an equity value of US$228 million
plus the assumption of debt estimated at US$52 million.
The transaction has been unanimously approved by both companies' boards of
directors and will be conditioned upon at least 66-2/3 percent of Velvet's
shares being tendered under the offer, regulatory approval and other customary
conditions. Velvet has agreed that it will not solicit competing offers and will
pay a C$15 million (approximately US$10 million) non-completion fee in certain
"The acquisition of Velvet provides EláPaso with a strong platform to
build a significant production business in western Canada," said Rod
Erskine, president of EláPaso Production Company. "Velvet has a large
acreage position which can be effectively developed using our proven technical
skills. Further, we are very enthusiastic about the prospect of adding Velvet's
high quality employee group to our team."
Based on EláPaso's evaluation of Velvet's reserves, in consultation with El
Paso's independent reserve evaluators, Velvet has 172 billion cubic feet
equivalent of net proved reserves (after royalties, on a 6:1 basis).
Approximately 59 percent of the reserves are natural gas. Current average daily
net production is 54 million cubic feet equivalent (MMcfe). Velvet has
approximately 65 employees.
The total acquisition cost per proved thousand cubic feet equivalent (Mcfe)
is US$1.16, after allocating value to Velvet's 403,000 net acres of undeveloped
land, its seismic position and tax pools. EláPaso expects the transaction to be
immediately accretive to 2001 and 2002 earnings and cash flow per share. The
acquisition will not materially affect net capital spending for EláPaso
Production in 2001. The transaction will be recorded using purchase accounting.
The board of directors of Velvet will recommend that shareholders accept El
Paso's offer. All of Velvet's senior management and directors have agreed to
tender and not withdraw their shares under the offer. EláPaso intends to mail
the offer to Velvet shareholders on or before June 25, 2001, with a closing date
expected in late July.
Lehman Brothers is acting as financial advisor to EláPaso on this transaction
and will act as soliciting dealer manager for the offer.
EláPaso Corporation, the largest and most broadly based natural gas company
in the world, spans the energy value chain from wellhead to electron. With an
enterprise value in excess of $50 billion, EláPaso is a leader in every phase of
the natural gas industry. The company owns and operates a significant portion of
the North American natural gas delivery grid, operates the fastest growing, most
sophisticated energy merchant group, and is the nation's third largest natural
gas producer. EláPaso, a leader in risk management techniques, is focused on
maximizing shareholder value, transforming existing markets, and speeding the
development of new markets. Visit EláPaso at www.elpaso.com.
This release includes forward-looking statements and projections, made
in reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The company has made every reasonable effort to ensure that
the information and assumptions on which these statements and projections are
based are current, reasonable, and complete. However, a variety of factors could
cause actual results to differ materially from the projections, anticipated
results or other expectations expressed in this release. While the company makes
these statements and projections in good faith, neither the company nor its
management can guarantee that the anticipated future results will be achieved.
Reference should be made to the company's (and its affiliates') Securities and
Exchange Commission filings for additional important factors that may affect