Kerr-McGee to buy HS Resources for $2.15 billion

By the OGJ Online Staff

HOUSTON, May 14 -- Kerr-McGee Corp., Oklahoma City, Okla., said Monday that it is acquiring HS Resources Inc., San Francisco, Calif., for $1.7 billion plus the assumption of $450 million in debt.

Boards of both companies have approved the deal, which is subject to approval by HS stockholders and regulatory bodies. It is expected to be completed in the third quarter.

HS shareholders will be able to take cash or stock so that 70% of the total HS shares are acquired for $66 in cash and 30% are acquired in exchange for 0.9404 shares each of Kerr-McGee stock.

HS Resources is an independent oil and gas company with projects in the Denver-Julesburg basin, Gulf Coast, Mid-Continent, and Northern Rocky Mountain regions.

Nicholas Sutton, HS chairman and CEO, said, "As a small-cap E&P company our stock price is not accorded valuation multiples commensurate with the value of our work, assets, and production."

Kerr-McGee said the transaction involves proved reserves of 1.3 tcf equivalent, at a cost of $1.10/Mcf of proved gas equivalent, and gas gathering, undeveloped acreage, and other assets valued at approximately $300 million. It said the reserves, mostly gas in the Denver-Julesburg basin, will increase Kerr-McGee's proved US gas reserves by 77% and increase the company's reserve life for US gas by 2 years. Kerr-McGee's total proved reserves will increase by 20%.

Luke Corbett, Kerr-McGee chairman and CEO, said, "The addition of these long-lived natural gas reserves, concentrated near one of the fastest-growing energy markets in the US, creates another core operating area for our company that provides significant growth opportunities. These properties also offer the potential to add more than 500 bcf from probable reserves through identified projects that have a proven track record of success.

"HS Resources has a focused exploration program onshore in the Gulf coast that supplements Kerr-McGee's high-potential deepwater prospect inventory. This transaction dovetails with our strategy to build a balanced portfolio of quality oil and gas assets that offers meaningful upside potential."

After closing the transaction, Kerr-McGee's daily production volumes are expected to increase 15%, with daily gas production increasing more than 45% in the US. Total unit lifting costs are expected to decrease about 6%.

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