14-06-01 Texas-based El Paso has struck a friendly $ 426 mm cash and debt deal for Velvet Exploration, a junior natural gas and oil producer based in Calgary. Velvet announced that its board is unanimously recommending stockholders accept the $ 8.15 per share offer for each of Velvet's 43.4 mm shares. In addition, El Paso is assuming about $ 79 mm of Velvet debt -- giving the deal a $ 426 mm price tag.
Canadian investors welcomed the takeover, pushing Velvet shares $ 1.10 higher to close at $ 8.04 on the Toronto stock market. Nearly 19 mm shares of the Calgary company were traded, making the issue one of the most active on TSE.
Among other assets, Velvet has key gas producing operations on native-controlled lands in central and southern Alberta. In the first quarter, the company produced about 31 mm cf of gas and more than 4,000 bpd of oil. El Paso valued Velvet's reserves at about 172 bn cf of gas equivalent, 59 % made up of natural gas.
"The acquisition of Velvet provides El Paso with a strongplatform to build a significant production business in western Canada," Rod Erskine, president of El Paso Production, said. "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."

Brian Prokop, an oil patch energy analyst, called the takeover "a great deal for shareholders" and reflect the growing demand by US utility and energy companies like El Paso for supplies of natural gas. "Velvet had a great exposure in the foothills of Alberta, which is very gassy," Prokop, of Calgary-based Peters and Co., said with ROBTv, a specialty business cable channel based in Toronto. "Many American companies are coming up looking for that natural gas. Velvet had that gas and more importantly the potential to have a lot more gas."
The friendly deal is one of numerous oil patch takeovers in the last year as US companies bulk up their Canadian presence by acquiring gas-heavy Canadian energy producers. For example, Conoco struck a $ 9.8 bn deal to buy Gulf Canada Resources, a major global oil and gas producer based in Calgary. Other notable deals included the $ 1.3 bn purchase of Encal Energy by Calpine, a major independent power producer seeking secure natural gas supplies.
Texas-based Anadarko Petroleum bought gas producer Berkley Petroleum in a takeover battle with Hunt Oil. Velvet said all its directors and officers have agreed to tender their shares to El Paso's wholly owned Canadian subsidiary. The offer will be conditional upon at least two-thirds of Velvet shares being tendered, as well as regulatory approvals. The companies have agreed on a $ 15-mm termination fee if the deal fails.

In announcing the friendly bid, Velvet said it has agreed not to solicit or start negotiations with any other company on any merger or sale. Velvet said its recommendation was backed by its financial advisers, Yorkton Securities and BMO Nesbitt Burns.