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THE WALL STREET JOURNAL: First Calgary Gives Bidders A Rare Chance ( Posted 15 April 05





LONDON -- First Calgary Petroleums Ltd., a tiny Canadian company that put itself on the block after stirring big interest with promising natural-gas discoveries in Algeria, could attract about eight bids today, say bankers familiar with the auction.


The auction represents a rare opportunity for oil and gas companies to scoop up valuable assets as they face dwindling options to bolster their reserves -- the lifeblood of the energy industry. "It's an opportunity that can't be ignored," says Jason Kenney, an analyst with ING Financial Markets in Edinburgh.


But First Calgary Petroleums is unlikely to garner the premium price paid in last week's $16.4 billion (12.69 billion) takeover of California-based Unocal Corp. by U.S. giant ChevronTexaco Corp. Potential bidders have backed off in recent weeks, partly because two-thirds of First Calgary's Algerian discoveries are categorized only as possible reserves -- the least certain in terms of eventually bringing them to production -- in a country short on pipeline capacity and prone to political instability.


Bankers expect the strongest offers from European oil companies that already have operations in Algeria, where First Calgary has development rights to two promising oil and gas blocks.


Spain's Repsol YPF SA; France's Total SA, perhaps in partnership with Gaz de France; Norway's Statoil ASA; and Italy's Eni SpA have been seen as front-runners. Other possible contenders are Royal Dutch/Shell Group, owned by Royal Dutch Petroleum Co., of The Hague, and London-based Shell Transport & Trading Co., and U.K. gas company BG Group PLC, which is a major gas producer and exporter in nearby Egypt. Royal Dutch/Shell announced its re-entry into Algeria last week. Repsol has said it is considering a bid. An Eni spokeswoman said late yesterday that the company has no interest in bidding. The other companies declined to comment.


First Calgary, which also declined to comment on the auction, put itself up for sale in October after concluding it lacked the financial and technical wherewithal to develop and bring into production its Algerian discoveries. Two blocks in eastern Algeria -- Ledjmet 405b and Rhourde Yacoub 406a -- are estimated to hold 13 trillion cubic feet of gas equivalent, roughly the same in size to Ormen Lange, the huge Norwegian offshore gas field.


In recent weeks, more than a dozen international oil companies have received access to First Calgary's technical and reservoir data, bankers said. First Calgary's shares jumped on the prospect of a bidding war, but many potential bidders have walked away, worrying that the company is overvalued, given its risk profile. "They've drilled 12 wells into what looks like a huge resource," said one London-based energy banker who is looking at the deal. "I'd think you'd need another 160 wells to be sure."


Any buyer would also have to foot a bill of more than $1 billion to bring the reserves into production, bankers estimate. Bankers said the disenchanted prospective bidders would have preferred to buy an equity stake giving them management control of the two blocks.


Still, the chance to build reserves at a time of declining internal growth options is irresistible for some companies. Despite being flush with cash, oil companies are generally loathe to spend excessively on new assets when their business models reflect a future of much lower oil and gas prices.


One London-based oil analyst estimated a value of 1 billion ($1.89 billion) to 1.35 billion, or 1.46 billion to 1.98 billion, compared with the company's 1.5 billion market capitalization yesterday. But another London-based energy banker close to the deal said even that discount looked rich, saying First Calgary would be lucky to field a bid of 750 million.


U.S. Investment bank Lehman Brothers Holdings Inc., which is advising First Calgary on its sale, declined to offer guidance on bid levels it expects.


Write to Michael Wang at 


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