OKLAHOMA CITY, April 29, 2002 (PRIMEZONE) -- The announcement of Canaan Energy Corp's (Nasdaq:KNAN) agreement with Chesapeake Energy Corporation (NYSE:CHK) to sell all of its outstanding shares for $18 per share is the culmination of a long term growth strategy for Canaan, an Oklahoma City based energy company. The price of Canaan's common stock has risen dramatically since Chesapeake began expressing interest in acquiring Canaan shares in November 2001. The $18 per share merger price represents a 137% premium over Canaan's closing stock price of $7.60 on November 26, 2001, the last trading day before Canaan's public announcement of Chesapeake's interest in acquiring Canaan shares and a 97% premium to Canaan's closing price of $9.15 on March 11, 2002, the day Chesapeake announced its intention of commencing a tender offer at $12 per share.
Subsequent to Chesapeake's March 11 announcement, Canaan retained CIBC World Markets as its financial advisor, evaluated all its strategic alternatives and competing offers, and over the course of several weeks, conducted negotiations with Chesapeake and solicited interest from other prospective acquirers. The final $18 per share price negotiated with Chesapeake was the highest price offered by any party. The Canaan board concluded that a sale at this price was in the best interest of shareholders compared to any trading price Canaan's stock was likely to achieve in the near future.
Canaan's history began as a private company sponsor of a series of limited partnerships which raised a total of $47.5 million between 1990 and 1997. From their inception until the final cash distributions in July 2000, the partnerships generated $50.7 million in distributable cash. In October 2000, Canaan completed a series of roll-up transactions resulting in the acquisition of the eight limited partnerships and the acquisition of Indian Oil Company, a privately held oil and gas company also based in Oklahoma City. The new company publicly registered its shares and the initial shareholders of Canaan were comprised of 52% of the former limited partners, 26% of management of Canaan and 23% of the shareholders of the former Indian Oil Company, which provided over 50% of the assets in the newly-formed company.
Canaan currently has total proved reserves in excess of 100 Bcfe, approximately 75% of which are producing, and daily production of 22,000 Mcfe. The company also has an inventory of more than 100 proved locations to be drilled. Canaan's activities are concentrated in the Mid-Continent area.
John K. Penton, Canaan's President, commented, "We are delighted to be able to offer our shareholders this opportunity to sell their shares at a significant premium and realize an immediate maximization of value. The $18 per share price is reflective of the quality of the Mid-Continent asset base which Canaan has assembled. Our goal has always been to acquire high-quality, long-lived natural gas reserves, which we believe to be an important building block in the foundation of a strong energy company and in maximizing shareholder value. We believe we have been successful in reaching those goals."
At the time of the roll-up, management recognized that Canaan would be a small, micro-cap energy company in a sea of larger competitors but the roll-up into a public company provided the limited partner investors liquidity, an option to exit from the self-liquidating partnerships, and a chance for growth in a public entity. The year 2001 was Canaan's first full year of existence and was spent primarily focusing on building an infrastructure, staffing, refining the business plan, and developing its existing properties. Throughout the year, Canaan assembled a staff and infrastructure which was larger and more expensive than most similarly sized competitors in order to position the company to quickly and efficiently make large, impact acquisitions.
Chesapeake initially indicated an interest in acquiring Canaan in private discussions in May 2001. At that time, after evaluation by a financial advisor, Canaan's board concluded that Canaan's young existence, future prospects, and exposure to high-impact projects dictated a decision not to engage in negotiations with Chesapeake. In November 2001, Canaan was notified by some of its shareholders who were former Indian Oil shareholders, of Chesapeake's offer to purchase their Canaan shares at $12 per share. Michael S. Mewbourn, Canaan's Chief Financial Officer, commented on the reasons Canaan elected to purchase these shares, "Canaan, which owned a preferential right to purchase such shares, recognized the selling shareholder's offer as having substantial value to the remaining shareholders when viewed in relation to underlying reserve values. The opportunity to buy our own shares at $12 effectively increased each remaining shareholders interest in the company's asset base. We believed the shares were significantly undervalued compared to net asset value and we exercised the right, purchasing 11% of the outstanding shares."
"Our agreement with Chesapeake at $18 per share reinforces our belief that the underlying value of our assets was worth more than $12 per share. While management believed in its continuation model, we recognized the immediate value to shareholders of Chesapeake's offer and the differential between our historical trading prices and sale price became compelling as the best avenue for our shareholders."
Leo E. Woodard, Canaan's Chairman and CEO, commented, "We are deeply grateful to those limited partners who financed the growth of Canaan's business since 1990, and for their patience and faith. They have been well rewarded, as they should be. This merger represents the liquidity event they expected when they exchanged their limited partnership units for stock in October 2000, and we believe it maximizes value for all shareholders."
"We also appreciate the hard work and dedication of our loyal and talented staff, who have been instrumental in Canaan's success. We anticipate that many will be offered the opportunity for continued employment with Chesapeake, where they will again prove to be productive employees."