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Date: Wed, 30 Aug 2000 03:38:00 -0700 (PDT)
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Subject: PanCanadian Buys Montana Power
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Note:  This article gives some of the strategy and economics of the purchase 
of Montana Power by Pan Canadian.  
We will look at the Oklahoma reserves for location and strategy with our 
pipe--with the switch in ownership, they may be 
receptive to strategy changes.

Lorna

PanCanadian Says Montana Power Purchase 'Beautiful Fit'

To extend what it sees as dominance in Canada's natural gas market and to 
boost its production by 10%, PanCanadian Petroleum Ltd. yesterday agreed to 
purchase Montana Power Co. for $475 million. The properties will extend 
PanCanadian's existing shallow gas properties in southern Alberta into 
northern Montana, adding 94 MMcf/d and 3,800 barrels of crude oil and natural 
gas liquids. 

The acquisition will give PanCanadian properties in Alberta, Montana, 
Colorado, Oklahoma and Wyoming, along with three gas pipelines linking 
Alberta and Saskatchewan to Montana. 

"We have a focus on natural gas," said CEO David Tuer during a conference 
call yesterday in Calgary. "This is clearly our future. It is difficult to 
put any negative on this (acquisition) and it's likely to stay valuable for 
the foreseeable future." 

Montana Power's production is more than 90% natural gas and associated 
liquids, and the acquisition substantially extends PanCanadian's land and 
infrastructure, allowing it to use its technology and operating strategies in 
a region that extends along the Alberta-Montana border. 

"The Montana Power assets clearly fit our strengths and allow us to employ 
our expertise in developing long life reserves of shallow and medium depth 
natural gas," Tuer said. "The potential in these assets is significant, and 
over the next few years, we will add substantially to PanCanadian's daily 
natural gas production." 

Tuer said that the acquisition extends the company's dominance in shallow 
gas, and called Montana Power a "beautiful fit with PanCanadian's gas 
strategy, land position and technological capability." 

PanCanadian's newest acquisition adds reserves of 550 Bcf and 20 MM barrels 
of oil and natural gas liquids on a proven and one-half probable basis, said 
officials. Production and reserves account for $520 million of the purchase 
price, while the remainder is made up of $135 million for the midstream and 
marketing assets, $40 million for the undeveloped land (about 600,000 acres), 
and $7 million of working capital. 

Tuer said the company was paying 77 cents/Mcfe of proven and on-half probable 
reserves. The price for daily flowing production, based on a 6:1 ration of 
gas to BOE is $4,450/Mcfe, or $26,710/BOE. 

Along with the added Alberta and Montana properties, PanCanadian also picks 
up some land in Colorado's Denver Basin, which now produces about 31 MMcf/d. 
Other land that is part of the sale is located in the Anadarko Basin of 
Oklahoma and the Green River Basin of Wyoming. 

Three natural gas pipelines that cross from Montana into Alberta and 
Saskatchewan also are included. The pipelines allow direct access to the U.S. 
markets for southern Alberta and Saskatchewan gas, and serve more than 1.2 
million net acres of developed and undeveloped lands, with most of it 
concentrated in parcels that span the Canada-Montana border. 

Midstream assets that go to PanCanadian include a natural gas marketing 
company in Butte, MT, along with a deep cut gas processing and fractionation 
plant in Colorado. The Fort Lupton, CO plant processes more than 60 MMcf/d 
and 5,500 barrels of natural gas liquids and condensate. 

In all, the total developed and undeveloped land is roughly 1.2 million net 
acres, or 1.7 million gross acres, said PanCanadian. 

"Montana Power fit us like a glove," Tuer said during the conference call. He 
said the acquisition will help PanCanadian to remain "best of class" for what 
it does. "It makes our sandbox that much bigger." 

The acquisition, which is expected to close around Oct. 31, will increase 
both PanCanadian's net income and cash flow this year and in subsequent 
years, said Tuer. The added gas production will immediately increase the 
company's natural gas, as a percentage of total production, to 58%, based on 
a 6:1 ratio of gas to BOE. 

About 25% of the natural gas being acquired from Montana Power now is being 
sold to Montana Power utilities for $1.50 to $1.60 MMcf until July 2002, and 
because it's priced below the open market officials think future earnings 
will be good. 

"As that contract expires, there's a lot of potential from the price in this 
transaction," Tuer said. 

And what's to become of Montana Power? Earlier this year, the 88-year-old 
company, headquartered in Butte, announced it would divest itself of four of 
its traditional energy businesses. By selling its coal production, natural 
gas transmission and distribution, independent power production and oil and 
gas exploration and production businesses, it plans to reinvest the proceeds 
in Touch America, a fiber optics and telecommunications business, which is 
also a subsidiary of Montana Power. 

"The process to determine the buyer for our oil and gas business was robust, 
and we are delighted with the result," said Montana Power CEO Robert P. 
Gannon. "We believe there will be a meshing of business strategies and that 
cultural synergy's exist between the purchased companies and Pan Canadian." 
He noted that Montana Power has had a Canadian presence for almost 50 years. 

PanCanadian purchased the entire oil and gas division, which now employs 
about 170. PanCanadian plans to maintain a regional office in Butte, invest 
in the acquired properties and grow daily gas production. There was no word 
on whether any jobs would be lost. 


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