Petronas Boosts Price for Progress Energy

Petronas Boosts Price for Progress Energy After Rival Bid
The Petronas Twin Towers (KLCC) stand illuminated against the skyline at dusk in Kuala Lumpur, Malaysia. Photographer: Goh Seng Chong/Bloomberg

Petroliam Nasional Bhd, Malaysia’s state-owned oil and natural-gas company, boosted its cash bid for Progress Energy Resources Corp. to C$5.16 billion ($5.13 billion) to counter a competing offer as producers race to secure Canadian supplies for export.

Petronas, as the Kuala Lumpur-based company is known, raised its price to C$22 a share from the C$20.45 it agreed to pay last month, according to a statement from Progress Energy Resources today. The new offer is 90 percent more than the Canadian oil and gas producer’s closing price on June 27, the day before the initial Petronas agreement was announced.

The higher price Petronas is willing to pay for the Calgary-based company highlights the interest in gaining access to gas reserves in Western Canada and shipping the fuel to Asia. Royal Dutch Shell Plc, Exxon Mobil Corp.’s Imperial Oil Ltd. and Apache Corp. are among the companies that have said they’re considering exports of liquefied natural gas.

While “the price looks very high relative to how natural gas is trading,” Progress Energy Resources’ holdings in British Columbia’s Montney shale-gas region give it a unique position to supply LNG projects on the province’s west coast, which is driving up the bids, said Michael Tims, chairman of Calgary-based investment bank Peters & Co. Ltd.

Progress Energy Resources rose above the offer price to C$22.85 at the close in Toronto, a 13 percent gain and the highest intraday price in more than four years.

Other Bidder

Chief Financial Officer Art MacNichol declined to identify the other bidder, citing confidentiality agreements.

The company rejected two bids from a “multi-national oil company” before agreeing to the Petronas takeover, according to a July 24 regulatory filing. Progress Energy Resources’ board was in talks with the unidentified company until June 11, two weeks before the Petronas deal was announced. The bids were rejected because they didn’t adequately value the company, according to the filing.

Shell is a multi-national oil company, is studying the feasibility of an export terminal in Kitimat, British Columbia, and recently pulled out of the race to acquire East Africa-based explorer Cove Energy Plc without providing an explanation, Sachin Shah, a merger arbitrage strategist at Tullet Prebon Americas Corp., said in a note.

“We believe the third party is someone that already has a vested interest in LNG in B.C., and Shell is probably at the top of that interest list,” Shah said in an interview.

Montney Basin

Shell does not comment on market rumor or speculation, Bill Tanner, a company spokesman, said in a telephone interview today.

Progress Energy Resources has 1.9 trillion cubic feet of proved and probable gas reserves and 820,000 acres (331,842 hectares) in the Montney, according to the company’s website.

British Columbia’s Montney Basin, one of Canada’s largest proven shale-gas reserves, holds an estimated 49 trillion cubic feet of gas, according to an April 2011 report by the U.S. Energy Information Administration.

Petronas is one of several Asian companies that have announced deals to buy Canadian oil and gas companies this year. Cnooc Ltd. announced an agreement on July 23 to pay $15.1 billion in cash for Calgary-based Nexen Inc., in what would be the largest overseas purchase by a Chinese company.

Asian Prices

Driving global interest in Canada’s gas reserves is the difference between North American prices and those paid in Asia for the fuel, where it’s linked to the price of oil. Japan LNG prices were $17.04 per million British thermal units as of May 31, including freight costs, compared with New York gas futures that averaged $2.354 per million Btu in the April-to-June period.

Another bid for Progress Energy Resources “is a distinct possibility, given the obvious interest by another party and Petronas’s strong commitment to closing this acquisition,” Steve Toth, a Calgary-based analyst for Canaccord Genuity Corp., wrote in a note today.

Progress Energy Resources would owe Petronas C$150 million if it accepts a better bid or cancels the deal.

“LNG is real, and the Montney Shale is real,” Progress Energy Resources’ MacNichol said.

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