Company News: WesternGeco to fold land operations in Lower 48, Canada

Oct. 28, 2002
In a move that may be indicative of the economic climate that oil services and supply companies will have to weather in the short to medium term, London-based seismic joint venture WesternGeco—owned through a 70:30 respective partnership of Schlumberger Ltd. and Baker Hughes Inc.—said that it would close down its land operations in the US Lower 48 and in Canada.

In a move that may be indicative of the economic climate that oil services and supply companies will have to weather in the short to medium term, London-based seismic joint venture WesternGeco—owned through a 70:30 respective partnership of Schlumberger Ltd. and Baker Hughes Inc.—said that it would close down its land operations in the US Lower 48 and in Canada.

The JV said that 1,200 employees would be affected worldwide by year- end. The venture said that land operations would, however, "continue in Alaska and Mexico, as well as other economically viable areas worldwide."

In other recent company news:

•E.On AG's UK subsidiary Powergen PLC said it will acquire Dallas-based TXU Corp.'s European retail business as well as three coal-fired power plants and the company's Citigen City of London combined heat and power (CHP) complex for £1.37 billion (2.17 billion euros) plus the assumption of £247 million of securitized receivables, and certain pension and other obligations.

TXU's continental European businesses and its trading and power purchase agreements, however, are not included in the deals, Powergen said.

•Wintershall Nederland BV, The Hague, has inked a deal to acquire Clyde Netherlands BV from Conoco- Phillips. Neither Wintershall nor Conoco- Phillips would disclose the value of the deal.

•Oneok Inc. has signed a definitive agreement to buy the Texas division and related assets of Austin-based Southern Union Gas Co. for $420 million. Southern Union Gas is a unit of Southern Union Co. of Wilkes-Barre, Pa.

•National Fuel Gas Co. (NFGC) inked an agreement with a unit of Duke Energy Corp. to acquire its Empire State natural gas pipeline for $240 million, which includes $60 million in assumed debt.

•Black Hills Corp., Rapid City, SD, signed a definitive agreement to acquire Mallon Resources Corp., Denver, for $52 million, with closing set for first quarter 2003. Both boards approved the deal. Mallon shareholders, who must still approve it, would receive 0.044 share of Black Hills stock for each Mallon share.

•Vancouver, BC-based Ivanhoe Energy Inc. and Beijing's China International Trust & Investment Corp. (CITIC) have formed a partnership alliance for operating in China and elsewhere around the world.

•Statoil ASA and Sweden-based Preem Petroleum AB have signed an agreement for the Statoil group to acquire Preem's Polish subsidiary.

WesternGeco downsizing

Earlier this month, Schlumberger reported that the seismic JV, which lays claim to the title of the world's largest seismic service company, would likely incur a loss for the third quarter. Schlumberger's share of the loss was $15 million, it said.

"The expected improvements in marine seismic profitability in the Northern Hemisphere did not materialize due to the continued softness in proprietary marine pricing," Schlumberger said.

WesternGeco was formed in mid-2000 through the combination of the seismic fleets, data processing assets, surveys, and other assets of Schlumberger's Geco-Prakla unit with Baker Hughes's Western Geophysical unit (OGJ, June 12, 2000, p. 28).

WesternGeco said that the move was part of its plan to reduce its focus on "conventional seismic operations, which have been severely impacted by commodity pricing, excess risk, and difficult terms over the last 10 years." The company also will hasten its move toward the production side of the exploration and production business, it said, "providing comprehensive seismic-based reservoir information solutions to the engineering and production asset teams."

WesternGeco Pres. Gary Jones said, "The action we've taken is an inevitable result of the high-risk, no-return state of affairs in the seismic industry."

WesternGeco's decision to close down some of its ailing operations were viewed positively by at least one analyst.

"We think these are positive steps," said Banc of America Securities LLC analyst James K. Wicklund in a research note. "Anytime a management recognizes a problem and attempts to correct it, that is a positive effort," he said, adding, "We are not convinced that operating results, at least over the next several quarters, will be incrementally positive other than the cost reductions associated with such a dramatic drop in headcount."

Wicklund noted, "This is not so much an indictment of management efforts as a shift in the business model of the industry." The analyst said that the current seismic business model is "flawed" and "the structure of the industry must change to be successful."

Powergen's TXU acquisition

Through the addition of TXU's 5.5 million retail electricity and natural gas customers in the UK, Powergen will become the largest electricity supplier in the UK, with more than 6 million customers, the company said. Based on its acquired gas customer base, Powergen will be the second largest supplier of gas in the UK, with about 2.4 million customers.

The deal still awaits approval by the European Commission, but the EC already has granted a derogation, which will allow the transaction to advance before completion of the approval process.

Included in the transaction are Drakelow C, a 999 Mw power station near Burton-on-Trent; High Marnham, a 945 Mw station in Nottinghamshire; Ironbridge, a 970 Mw station in Shropshire; and the Citigen CHP complex.

About 1,900 TXU employees, mainly based in Ipswich, have been transferred to Powergen.

"Our immediate priority is to stabilize the TXU retail business and to work to remove any staff uncertainty as soon as possible," said Paul Golby, Powergen UK's chief executive. "We have a good record in managing change during previous acquisitions and look forward to talking to staff and their trade union representatives in the near future," he added.

Wintershall's Clyde acquisition

Wintershall Nederland is a division of German firm Wintershall AG, a wholly owned unit of BASF AG. ConocoPhillips predecessor Conoco Inc. acquired Clyde through its acquisition of Calgary-based Gulf Canada Resources Ltd. in mid-2001 (OGJ, June 4, 2001, p. 36).

Clyde operates largely in the Dutch sector of the North Sea. "Acquiring Clyde is a major step in the implementation of our growth strategy," said Reinier Zwitserloot, Wintershall CEO. "Germany and the southern part of the North Sea traditionally represent a key region for us and form the basis for the development of our technological core capabilities," he added.

Wintershall said that its asset portfolio is "well matched" with Clyde's. Also, the deal will double Wintershall's production in the Netherlands and its Dutch reserve base, the company said.

"At the same time, Wintershall will emerge as the third largest producer in the Netherlands and will strengthen its position as Germany's largest (exploration and production) company," it said.

Wintershall said that it plans to focus on expanding its Dutch operations into a "center of expertise" for its offshore activities. "Our goal is to show substantial progress in creating a joint company by the beginning of next year," Zwitserloot said.

Wintershall said that it expects the deal to close as soon as possible but that the acquisition is subject to approval by the German and Dutch competition authorities.

Oneok expands into Texas

This most recent acquisition follows the Tulsa-based Oneok's recent divestiture of its north central midstream gas assets in Oklahoma to a unit of privately held independent oil and natural gas company Mustang Fuel Corp., Oklahoma City, for $92 million.

The related assets being acquired by Oneok include Supro Energy Co., Southern Transmission Co., Mercado Gas Services Inc., and Southern Union Gas's natural gas distribution investments in Mexico. The acquisition also includes a 125 mile natural gas transmission system, which is regulated by the Texas Railroad Commission.

The acquisition, according to David Kyle, Oneok chairman, president, and CEO, will make the company the fourth largest gas distributor in the US with nearly 2 million customers in Oklahoma, Kansas, and Texas.

Oneok also will become the third largest gas distributor in Texas, the company said.

The Texas properties' operating income for the 12 months ending June 30 was $41.2 million, of which 95% was related to the Texas distribution operations, Oneok said.

The company expects the deal to close by yearend.

Separately, Oneok's divestiture of its Oklahoma assets included three processing plants and related gathering systems and an interest in a fourth processing plant.

The properties were no longer considered by the company to be core assets, Kyle said.

Closing on that deal is expected by Nov. 15, Oneok said.

NFGC buys Empire system

According to the deal, Buffalo, NY-based NFGC will acquire all outstanding shares of Empire State Pipeline Co. Inc. and St. Clair Pipeline Co. Inc., each of which holds 50% interest in Empire. Duke Energy unit Duke Energy Gas Transmission currently operates the New York intrastate gas pipeline system.

Duke Energy, based in Charlotte, NC, acquired the 24-in. Empire State system as part of its $8.5 billion acquisition of Westcoast Energy Inc. of Vancouver, BC, last year (OGJ Online, Sept. 21, 2001). The 157 mile Empire line extends from the US-Canadian border at the Niagara River's Chippewa Channel to an interconnection point with other systems near Syracuse, NY. The system, which was constructed in 1992 and put into service a year later, has the capacity to transport 525 MMcfd.

Acquisition of the Empire system, said Philip C. Ackerman, NFGC chairman, president, and CEO, will "better position" the company to deliver gas to growing markets along the US East Coast.

NFGC expects the deal to close in December or in the first quarter of 2003.

Black Hills-Mallon deal

The purchase price included assumption by Black Hills of Mallon's debt to Aquila Energy Capital Corp. and settlement of outstanding hedges, together $30.5 million.

Black Hills had 4 million bbl of oil and 24 bcf of gas reserves, all in the US, at the end of last year. Mallon's proved reserves as of yearend 2001 were 53.3 bcf of gas equivalent.

Black Hills said Mallon's current proved reserves could be substantially higher, based on a review of the reserves and current oil and gas prices.

The reserves are on the Jicarilla Apache Nation in the San Juan basin of New Mexico and are comprised almost entirely of gas in shallow sand formations.

The acquired leases total more than 66,500 gross (56,000 net) acres, most on a contiguous block that is in early development stage.

Black Hills also believes it could recover additional gas from the shallow sands and more gas from deeper horizons that have yet to be explored but are productive elsewhere in the San Juan basin.

The Mallon properties produce about 13 MMcfed of gas. Mallon operates 149 of 171 total wells with 90-100% working interests in most wells and acreage.

Black Hills reported drilling no wells in 2001. The acquisition will give it operatorship of Mallon's exploration and development program.

Ivanhoe-CITIC JV

The partnership will be between CITIC's Hong Kong-based unit CITIC Energy and Ivanhoe's Sunwing Energy Ltd. of Calgary.

Based on the agreement, CITIC Energy will assist Sunwing to strengthen its position in Asia and to gain access to future financing opportunities, Ivanhoe said. Initially, the CITIC unit will help Sunwing develop gas resources in the Sichuan basin. Last month, Sunwing signed a 30-year production-sharing contract with PetroChina Co. Ltd. unit Pan-China Resources Ltd. of Beijing for the joint venture development of gas reserves on Zitong Block in the western portion of the Sichuan basin (OGJ Online, Sept. 23, 2002).

In turn, Sunwing said it will assist CITIC Energy to acquire interests in global oil and gas development projects and work to introduce gas-to-liquids and other technologies.

"China has been a net oil importer for nearly 10 years," said Wang Jun, CITIC chairman, "and China's continually growing economy will rely on more diverse energy sources."

Statoil in Poland

Under the deal, Statoil will assume ownership of 79 service stations in Poland, increasing its local network to more than 200 outlets.

"This acquisition will strengthen and promote our standing in the Polish market," said Kristian Hausken, managing director of Statoil Polska in Warsaw. "It also reinforces our position as one of the three international service station chains in Poland.

"The takeover may also be seen in the light of the current restructuring in the Polish petrol retail market," Hausken added.

The agreement is conditional upon approval by the Polish authorities.

Statoil's first service station in Poland opened in 1993, and the company now has about 2,000 employees in Poland.