COMPANY NEWS: Pure evaluates Unocal offer to acquire outstanding shares

Based on Unocal's Aug. 20 bid to acquire all minority shares of the Midland, Tex., independent, Pure stockholders will be offered 0.6527 share of Unocal common stock in a tax-free exchange for each outstanding share of Pure's common stock held. Unocal said it would issue some 12 million shares to complete the deal.

In other recent company merger and acquisition news:

• Williams Energy Partners LP, a unit of Tulsa-based Williams Cos. Inc., signed an agreement to acquire the Northern Great Plains (NGP) products system, a 430 mile refined petroleum products pipeline, from Tesoro Petroleum Corp. for $110 million.
• Alexandria, Va.-based Vision Technologies Kinetics Inc. (VTK), a wholly owned unit of Singapore Technologies Engineering Ltd., has reported that it will acquire Halter Marine Inc. from Friede Goldman Halter Inc. of Gulfport, Miss., for $66 million.
• Shell Petroleum NV and Deutsche Shell GMBH—both units of Royal Dutch/Shell Group—signed an agreement with RWE DEA AG to acquire RWE's share in the 50:50, Hamburg-based joint venture Shell & DEA Oil GMBH.
• India's state-owned Oil and Natural Gas Corp. (ONGC) has signed a sale and purchase agreement with the McAlester Fuel Co., McAlester, Okla., for a 10% equity stake in a gas exploration project off Louisiana.
• Unit Corp., Tulsa, completed its acquisition of 20 operational drilling rigs—including 12 SCR electric units—from Kaiser-Francis Oil Co., also based in Tulsa, in return for 7.22 million shares of Unit common stock and $4.5 million cash.
• Prime Natural Resources Inc., Houston, completed the acquisition of the Rubiales license and Rubiales oil field in Colombia's Llanos basin from Petrolex Energy Corp., Vancouver, BC, and affiliates.

Unocal-Pure deal

Through its subsidiary, Unocal already holds 65% of Pure's common stock. Unocal's offer, the company said, represents a value of $22.25/share, which is a 27% premium over Pure's Aug. 20 closing stock price.

Unocal said it expects to commence its exchange offer by Sept. 5, adding that it plans to "effect a short-form merger of Pure" once the exchange offer is completed.

A day after Unocal's announcement, Pure acknowledged receiving the offer and stated that by Sept. 19, the company would "advise its stockholders of its position, if any, with respect to the exchange offer" and the reasons behind that position.

Meanwhile, Pure officials asked stockholders to "defer making a determination whether to accept or reject the exchange offer until they have been advised of (the company's) special committee's positionellipse."

Analysts' reaction

Following Unocal's announcement, Fitch Ratings placed Pure's BBB- senior unsecured debt rating on rating watch positive. Fitch also affirmed Unocal's senior unsecured debt rating of BBB+, trust convertible preferred securities rating of BBB, and commercial paper rating of F2. "The rating outlook for Unocal remains stable," Fitch said.

"An upgrade of the Pure notes is dependent on the level of support provided by Unocal," Fitch noted, adding, "Currently, Pure's debt is nonrecourse to Unocal, and management has not indicated whether or not they will guarantee Pure's debt upon completion of the acquisition."

Merrill Lynch said, "Consolidation has long been an investment theme for the energy sector, and more specifically the (exploration and production) subsector," adding that Unocal's unit purchase price for Pure of $1.15/Mcfe falls "well within the range" of recent US merger and acquisition activity (see table). According to Merrill Lynch, over the last 2 years, 21 sets of companies have been involved in M&A deals, averaging a value of $1.26/Mcfe.

Williams's pipeline purchase

The NGP product system, which includes four terminals, connects San Antonio-based Tesoro's 58,000 b/d Mandan, ND, refinery to Minneapolis. The terminals are in Jamestown and Moorhead, ND, and Sauk Centre and Roseville, Minn.

The deal excludes Tesoro's refinery and terminal, its crude-gathering system in western North Dakota, and its network of retail outlets. The deal is expected to close in mid-October, pending appropriate regulatory approvals.

Williams said the system is expected to earn it about $15 million/year, before interest, taxes, depreciation, and amortization. "This asset is an excellent strategic fit with our Williams Pipe Line system and provides the partnership with additional stable, fee-based revenues," said Don Wellendorf, Williams CEO.

Tesoro said it would use the sales proceeds to pay down a portion of its bank debt as well as for general corporate purposes.

Vision-Halter Marine deal

Halter Marine, a leading builder of small to medium-sized offshore drilling rigs and other vessels, had effectively become the subject of a bidding war after Friede Goldman Halter agreed to sell the operating unit to Bollinger Shipyards Inc. earlier this year for $48 million (OGJ Online, May 24, 2002).

VTK's winning bid was announced late last month.

The sale includes all of Halter Marine's operating assets and properties, including the Halter Pascagoula, Halter Moss Point, Halter Lockport, and Halter Gulfport East facilities.

Shell-DEA downstream JV

Shell & DEA Oil, which began operations in January, operates 650,000 b/d of refinery capacity and a network of about 3,200 retail stations in Germany.

The date of this transaction, which is valued at $1.35 billion, has been pushed forward.

Under the original JV agreement between the firms, RWE had a put option that could have required Shell to purchase its share between mid-2003 and mid-2004. Shell's purchase gives it full ownership interest of the JV effective July 1.

Shell and RWE DEA expect to save $150 million/year through their JV.

ONGC lands US acreage

ONGC, which signed the deal through its Houston-based subsidiary Sakhalin India International, has been trying to hedge against steadily declining oil and gas production from its domestic properties by purchasing international acreage.

The first well drilled on the structure indicated the presence of gas at a depth of 16,500 ft. The second well on the structure is currently being drilled and has reached a depth of 16,000 ft. After well logging and casing, drilling will be carried out to a depth of 16,850 ft.

"We expect that gas reserves in the property will be similar to those in our Viet Nam exploration acreages," said Y.B. Sinha, ONGC's director, exploration. "Once we locate the gas, we will work out arrangements to sell it through a neighboring marketing network."

Unit's rig acquisition

Officials with Unit said 15 of the rigs that they purchased are currently under contract. Depth capacities of the rigs are 12,000-25,000 ft, with a power range of 650-2,000 hp. Of the group, 15 are rated at 1,000 hp or more.

The acquisition was made through two separate agreements with Kaiser-Francis, one of which gives Unit an exclusive first option to purchase any additional rigs constructed by the seller within the next 3 years, officials said.

The acquisition boosts Unit's fleet to 75 rigs, 52 of which are currently operating. John G. Nikkel, Unit's president and CEO, said, "This transaction benefits Unit because the rigs complement our existing fleet and enhance our presence in our current markets. Fifteen of the 20 rigs will be operating in the Anadarko basin and 5 rigs will be in the Gulf Coast basin."

Prime completes oil field deal

Prime's consideration for the Rubiales license and oil field was about $2 million cash plus $3 million in liabilities. One of a succession of operators said the field had 211 million bbl of proved reserves of heavy oil. Another opined 350 million bbl recoverable, equaling 13% of OOIP, or more.

Petrolex said it sold the field because of a serious and deteriorating situation marked by disrupted operations, reduction of production and revenues, and doubts about personal safety of field and office staff in Colombia. Petrolex said funds were not available to resolve the situation, which placed the license in jeopardy of cancellation.

The former Tuskar Resources PLC, Dublin, discovered Rubiales, 150 miles east-southeast of Bogota, in 1989. Modest volumes of oil were produced and trucked to a refinery because funds could not be arranged to construct a needed pipeline from the field to Porvenir.

Prime, a private oil and gas exploration and production company owned by Elliott Associates, a New York and London investment fund, has production in and off Louisiana and Texas.