Major natural gas producer and pipeliner El Paso Corp launched a C$347 million ($228 million) bid yesterday for Canada's Velvet Exploration Ltd, the latest in a steady stream of takeovers of Canadian gas firms by U.S. companies.

Under the friendly deal, El Paso will offer C$8.15 in cash for each share of small gas producer Velvet, representing a premium of 11 per cent over Velvet's stock price in Toronto before it was halted for the news yesterday.

Houston-based El Paso will also assume about C$79 million in debt, bringing the total value of the deal to about C$426 million. Velvet is known for its exploration and production deals on aboriginal lands with such native groups as the Hobbema, Stoney and Peigan bands in central and southern Alberta.

In the first quarter, Calgary-based Velvet produced about 31 million cubic feet of gas and 4,053 barrels of oil a day. El Paso pegged Velvet's reserves at a net 172 billion cubic feet of gas equivalent, about 59 percent of which is made up of gas.

"The acquisition of Velvet provides El Paso with a strong platform to build a significant production business in western Canada," Rod Erskine, president of unit El Paso Production Co, said in a statement. "Velvet has a large acreage position which can be effectively developed using our proven technical skills."

The takeover follows a raft of similar deals in recent months. U.S. energy firms have been trolling Canada for acquisitions, armed with cash and benefiting from a favorable currency exchange, amid continuing expectations of strong gas prices.

Other recent acquisitions have included Conoco Inc's C$6.7 billion takeover of Gulf Canada Resources Ltd, Calpine Corp's C$1.3 billion buyout of Encal Energy Ltd, Anadarko Petroleum Corp's purchase of Berkley Petroleum Corp, among numerous others.

El Paso said the deal would boost its 2001 and 2002 earnings per share, but not materially affect its capital spending budget. The companies said Velvet agreed to pay El Paso a break fee of C$15 million should the deal fall through.

Velvet shares jumped C$1.09 to C$8.03 in heavy volume in Toronto after the news on yesterday. They had ranged from C$7.18 to C$3.05 over the past 52 weeks. In New York, El Paso fell $1.09 to $55.51.