Gulf Canada has much riding on Indonesia IPO<\/p>\n
CALGARY (Reuter): Gulf Canada Resources Ltd, whose initial
\noffering of Indonesian oil and gas assets is set to hit the
\nmarket next week, has plenty riding on the deal as it aims to
\nbring a huge debt load down to manageable levels.<\/p>\n
Gulf plans to price up to 24.2 million shares of Gulf
\nIndonesia Resources on Monday, in hopes of maximum net proceeds
\nof US$455 million it could apply to its debt, which rings in at
\nabout C$2.6 billion (US$1.9 billion).<\/p>\n
\"There's no question the Indonesian initial public offering is
\npretty key to debt reduction plans,\" said Craig Langpap, analyst
\nwith Calgary-based brokerage Peters & Co Ltd.<\/p>\n
\"To me, it looks like if they receive the advertised prices
\nthey should be exceptionally pleased. I wouldn't have expected it
\nto go for that much.\"<\/p>\n
Industry sources said Gulf Chief Executive J.P. Bryan was
\npersuasive in telling worldwide investors the deal meant
\nattractive gains despite its relatively high price.<\/p>\n
Gulf's offering could be priced as high as US$23 and as low as
\nUS$17 a share. The issue would be priced on Monday and start
\ntrading on the New York Stock Exchange on Tuesday, a Gulf
\nspokeswoman said, adding demand had exceeded the number of shares
\nbeing made available.<\/p>\n
If priced at an expected level of about US$20 a share, Gulf
\nIndonesia, would have a stock price of almost 11 times projected
\n1998 cash flow per share and seven times that expected by the end
\nof 1999, analysts said.<\/p>\n
The average cash flow multiple for Canadian and U.S. stocks is
\nfive to seven times the next year's cash flow.<\/p>\n
No stranger to creative financing, Bryan often cites his
\nsuccess in buying Alberta's stake in the Syncrude Canada Ltd oil
\nsands operation and creating a royalty trust, which has more than
\ndoubled in value since its 1995 IPO.<\/p>\n
Bryan's stated aim now is to pull Gulf's debt, a millstone he
\nhas tried to shed since taking the company's helm in 1995, into
\ninvestment-grade range by the end of this year.<\/p>\n
The company took on more debt when it acquired Britain's Clyde
\nPetroleum and Canada's Stampeder Exploration this year.<\/p>\n
Besides the Indonesia issue, Gulf also plans to sell its Zama-
\nVirgo, Alberta oil assets for C$400 million this year.<\/p>\n
\"I think that if he gets those two things done, he'll be well
\non his way to clearing up the concern over the balance sheet.
\nThat is one of the last remaining issues here,\" said Robert
\nHinckley, analyst with Merrill Lynch & Co in New York.<\/p>\n
Gulf was indeed within shooting distance of investment- grade
\ndebt, said Zaheer Khan, managing director of corporate ratings
\nfor Canadian Bond Rating Service.<\/p>\n
But before it clears its last hurdle, Gulf must not only
\nreduce outstanding debt, but pay preferred shareholders all
\ndividends in arrears and keep up current payments, Khan said.<\/p>\n
Meanwhile, shares in Gulf Indonesia were not without risk,
\nHinckley said. As in all oil stocks, there was the chance that
\nexploration might not be successful, he said.<\/p>\n
Gulf Indonesia must also show it can operate profitably under
\nIndonesia's fiscal terms, in which a firm's production take after
\nrecovering costs falls to 30 to 35 percent for gas projects and
\n15 percent for oil, he said.<\/p>\n
\"You've got to keep recycling the cash. The minute you stop
\nreinvesting, your rates of return go to single digits.\"<\/p>",
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