Chinese offshore oil producer CNOOC Ltd. and Beijing-based petroleum and chemicals trading firm China National Chemicals Import & Export Corp. (Sinochem) recently have entered into separate agreements to acquire certain key assets.
State-owned CNOOC said it would buy Repsol-YPF SA's interest in five Indonesian oil and gas properties for $585 million. Sinochem, meanwhile, has entered into a definitive agreement to acquire Petroleum Geo-Services ASA's Atlantis subsidiary in a deal valued at $215 million, which includes debt.
Elsewhere around the world, other oil and gas companies have been active on the merger and acquisition front as well. Recent transactions-or potential transactions-include:
- Italy's ENI SPA, Europe's fourth-largest integrated oil company, has confirmed that it has substantial cash reserves to finance a takeover program that could include the UK independent Enterprise Oil PLC.
- Duke Energy Field Services (DEFS) and a unit of Williams Cos. Inc., Tulsa, have agreed to swap gas gathering and processing interests in Wyoming, Texas, and Oklahoma.
- Delta Petroleum Corp., Denver, agreed to buy all the US oil and gas properties of Castle Energy Corp., Radnor, Pa., for $20 million and 9.6 million shares of Delta common stock.
- Kinder Morgan Energy Partners LP, Houston, agreed to buy another 10% of an Alberta-to-Ontario pipeline, bringing its stake to 45%.
- Capco Energy Inc., Orange, Calif., plans to acquire privately held Energy Reserves Group LLC (ERG), Houston, for $10.5 million.
- Wyoming Oil & Minerals Inc., Casper, Wyo., agreed to acquire New Frontier Energy Inc., a Rocky Mountain oil and gas exploration and development company.
CNOOC in Indonesia
CNOOC said the assets purchased from Repsol-YPF would make it the largest offshore oil producer in Indonesia. The purchase covers net working interest reserves of 360 million boe held by nine Repsol-YPF subsidaries active onshore and offshore.
The assets include:
- Southeast Sumatra production-sharing contract (65.34% interest).
- Offshore Northwest Java PSC (36.72%).
- West Madura PSC (25%).
- Poleng technical assistance contract (50%).
- Blora PSC (16.7%).
The Chinese firm will become operator of the Southeast Sumatra PSC. BP PLC will continue to operate the Offshore Northwest Java PSC. CNOOC already holds a 39.51% interest in the Malacca Strait PSC.
Separately, Chairman and CEO Wei Liucheng said CNOOC's core strategy for 2002 is unchanged.
"We will continue to focus on growing production, executing our development plan, and adding reserves through exploration. In addition, we are taking advantage of some highly attractive investment opportunities that offer our investors additional growth in production and net income."
CNOOC's target production in 2002 is 125-130 million boe and will be met primarily through development of reserves off China. Three major projects would come on stream in 2002.
The company said natural gas (including LNG) would continue to be a priority. "CNOOC is in the best position to capitalize on the growing demand for natural gas in China, especially in the coastal regions," the company said.
In addition to the Indonesian purchase, 2002 capital expenditures would be about $1 billion. CNOOC will spend $650-720 million for development projects and $180-220 million for exploration off China.
Foreign PSC partners are expected to invest another $300 million in exploration off China, a 150% increase over 2001.
CNOOC said capital expenditures for the newly acquired Indonesian unit will be $40-50 million, 90% of which will be for development projects.
The company plans to keep production costs below $10/bbl for offshore China assets and reduce the historical costs for the Indonesian properties.
Sinochem deal
The sale of PGS's Atlantis unit, which is expected to close in the first quarter, is valued at $215 million, including debt.
PGS entered into final stages of negotiations to sell its Atlantis unit in October 2001. In the second quarter 2001, PGS received a nonbinding offer from Sinochem to purchase all of the shares of Atlantis. The unit had "accumulated a valuable package of exploration and production properties, which are not core to PGS's ongoing oil field service activities," said PGS chairman and CEO Reidar Michaelsen.
PGS's sale of Atlantis completes the company's asset-hewing program that was started more than a year ago as a way to divest noncore properties before its planned merger with Houston-based Veritas DGC Inc. was announced late last year (OGJ, Dec. 3, 2001, p. 38). "During this period-and including the expected proceeds from the sale of Atlantis-PGS will have realized more than $500 million from sales of noncore assets," Michaelsen said. The sale of Atlantis "will also satisfy one of the conditions to the closing of the Veritias transaction," he said.
Sinochem's acquistion of Atlantis is a "major step [in the company's] strategy to expand into the global upstream sector," said Sinochem CEO Liu Deshu. "It is also consistent with our goal of improving the competitiveness of Sinochem's overall petroleum operations through vertical integration."
Enterprise suitor?
Senior ENI management has confirmed speculation that ENI has Enterprise in its sights.
ENI CEO Vittorio Mincato said in London, "Enterprise is interesting to ENI. It is not the only company interesting for ENI. Enterprise is a company interesting to ENI together with other companies. The UK is a place where such a deal can happen more easily. ENI is not interested in megamergers."
Financial analysts have speculated that the Italian company will launch a bid after Enterprise said last week that it had rejected an offer.
At a briefing in London earlier this month, ENI Chief Financial Officer Marco Mangiagalli said, "We have a strong financial position, and the reference to cash is appropriate. The company has considerable firepower should we decide to go ahead with any acquisition."
At the briefing ENI said it would boost oil and gas production by 6%/ year to at least 1.7 million boe/d in 2005, twice the rate targeted by its rivals ExxonMobil Corp. and Royal Dutch/Shell Group.
ENI achieved its previous production growth target a year early, partly thanks to its 5.31 billion-euro acquisition last year of Lasmo PLC, a UK-based Enterprise competitor, which added 196,000 b/d to its output.
Enterprise is expected to outline its position on Feb. 5, when it will announce its annual results.
DEFS-Williams swap
The DEFS-Williams asset swap transaction is expected to close during first quarter. Williams will receive DEFS's 34% interest in the Echo Springs processing plant and related gathering system near Wamsutter, Wyo., bringing its interest to 100%. Williams recently completed a $45 million upgrade to the complex, increasing its capacity to 400 MMcfd (OGJ Online, Jan. 9, 2002).
In exchange, DEFS will receive Williams's Oklahoma Hugoton gathering system and the Baker, Hobart Ranch, and South Bishop gas processing plants near Baker, Okla., and Canadian, Tex., and in Ellis County, Okla., respectively.
Delta-Castle deal
Delta's property acquisition agreement with Castle does not include Castle's Romanian activities. Although the deal is subject to Delta Petroleum shareholder approval, closing is expected in April. Each company is subject to penalty for failure to close.
The properties include 525 producing wells in 14 states plus associated undeveloped acreage, with proved reserves of 65 bcf equivalent, of which 32 bcfe are producing. Production from the Castle properties will more than double Delta's output to 3,400 boe/d and triple proved producing reserves.
The cash portion of the purchase price will be reduced by the cash flow generated by the properties between Oct. 1, 2001, and the closing date of the transaction.
"We decided to sell our oil and gas properties for a substantial equity stake in Delta Petroleum because of Delta's significant undeveloped crude oil reserves, its potential to realize the value inherent in its federal leases offshore California, the opportunity to eliminate duplicative general and administrative costs, and the fact that we can sell our domestic properties with only minor tax consequences," said Joseph L. Castle II, Castle Energy CEO.
Delta may repurchase up to 3.2 million shares from Castle at $4.50/share for 1 year after closing. Upon closing, Delta's four-person board will be expanded by three directors named by Castle.
Kinder Morgan purchase
Kinder Morgan will pay NOVA Chemicals Corp. $29 million in cash for the interest in the Cochin NGL pipeline. The line is a joint venture of Kinder Morgan, BP PLC, and Conoco Inc.
Cochin Pipeline, built in the late 1970s, consists of 1,900 miles of 12-in. pipe between Fort Saskatchewan and Sarnia. It can transport 112,000 b/d of high vapor pressure ethane, ethylene, propane, butane, and other natural gas liquids to the US Midwest and eastern Canadian petrochemical and fuel markets.
The deal is subject to rights of first refusal from the other Cochin Pipeline owners. Closing is expected in February. The transaction will be effective Dec. 31, 2001.
Also, Kinder Morgan, through its subsidiary Kinder Morgan CO2 Co., has purchased Torch E&P Co.'s interest in the Snyder gasoline plant and will become plant operator. Kinder Morgan CO2 also agreed to purchase Torch's interest in the Diamond M Gas Plant.
Both plants process gas produced by the Scurry Area Canyon Reef Operators Committee unit area in the Permian basin of West Texas. Kinder Morgan CO2 owns more than 80% of SACROC.
Capco-ERG deal
ERG is an oil and gas production and development company producing 830 boe/d, mostly in the Texas Gulf Coast area and Wyoming.
Capco expects to be able to develop additional reserves from ERG's existing wells.
Of the purchase price, $3.25 million is in cash and Capco stock, and the rest is in assumption of bank debt. The acquisition should close in 30 days.
"This acquisition will increase our current gross production to over 1,000 boe/d and provide us the necessary cash flow, reserve base, and infrastructure to significantly improve our position in the exploration and production business," said Capco CEO Ilyas Chaudhary.
Wyoming Oil-New Frontier
New Frontier will exchange all its common shares for shares of Wyo- ming Oil on a 1:1 basis, representing 91% of the common shares of Wyo- ming Oil. New Frontier will become a wholly owned subsidiary of Wyoming Oil.
The deal is subject to New Frontier shareholder approval and other conditions but is expected to close by Feb. 6.
New Frontier's primary focus area is the Coal Bank Draw and Slater Dome prospects in Moffatt County, Colo., and Carbon County, Wyo. The company owns a 33% working interest in 15,326 gross acres in the area with Phillips Petroleum Co. as operator.