Canadians gobble up US petroleum shares

Petroleum industry sources here forecast more corporate raiding parties by Canadian companies into the United States. The aim is to capture minority interests in American firms.

The Canadians are said to be keen on picking up blocks of stocks in US oil companies regarded as undervalued either as a direct investment or as a bargaining tool to spinoff Canadian subsidiaries.

The leading western Canadian real estate developer, NU West Group Ltd., is a case in point. It recently purchased 6.3 percent or $5.5 million of Cities Service Company common stock, with its eye on Canada Cities Service.

Another example is Dome Petroleum Ltd. It bought 20 percent of Conoco's stock, but really wants Conoco's 53 percent stake in Hudson's Bay Oil and Gas Company (HBOG).

There will be more of these raids, local industry sources say, because of the investment opportunities they represent for liquidity-rich Canadians afraid to sink their money into prospects at home. Also, the Canadians view the local subsidiaries of US and other foreign companies as "fair game" now that their future has been clouded by Canadian federal legislation of a nationalistic hue.

Foreigners have effectively been looked out of a federal grants system. They can no longer explore, let alone produce, crude oil and natural gas from federal permits unless partnered by Canadians -- in a majority role. That means the relinquishing of a large portion of their assets.

So, the intrinsic value of these foreign-owned subsidiaries all of a sudden has been substantially reduced. The Canadian federal government in fact is urging Canadians to go after the foreign- controlled operations in line with expressed "Canadianization" policies pioneered by the government's own corporation Petro-Canada. Ottawa is likely to spur CDC Oil & Gas ltd., a partly government-owned operation here, to become active purchaser of foreign assets and operations.

As expressed by Conoco chairman Ralph E. Bailey, American oilmen "are not amused" at the prospect of their stock being bought by Canadians especially when the Canadian subsidiaries end up as the pawns in the transactions.

Conoco has enacted a company bylaw to prevent foreigners from holding more than 20 percent of its common and preferred stock. Other US companies are expected to follow suit as a means of corporate self-defense. So Canadian companies will likely act soon in order to pick the best buys in what is perceived as a bargain-priced petroleum industry supermarket with prospects enhanced by the Reagan administration's obvious probusiness bias.

NU West two years ago poured some of its cash ($450 million Can.) to buy Voyager Petroleums Ltd., a feisty, local independent with an excellent natural gas position. Acting through Voyager's experienced management, NU West has been buying Cities Service stock for "quite some time." Although nothing is being said officially for the time being "for obvious reasons," privately it has been admitted to this reporter that Canada Cities Service is the target of the ambitious corporate maneuvers. The Cities Service stock so far cost NU West almost $220 million (US).

It is prepared to "round out" the eventual offer for Canada Cities Service with cash and other considerations and to sell back Cities Service its own stock or swap it for part of the subsidiary, valued at about $1 billion (US). NU West is spending about $500 million to buy majority control of Calgary Power Ltd., Canada's largest investor-owned utility serving the booming province of Alberta.

Dome is also eager to get hold of HBOG, a leading producer of oil, gas and liquids. HBOG, the same as Canada Cities Service, holds valuable frontier permits and both have a commanding position in oil sands permit holdings and bitumen recovery technology.

Canadian industry sources predicted some kind of reaction from the US as the pressure on Washington to protect American corporate oil interests abroad -- and increasingly at home as well -- builds up.