Petro-Canada, Calgary, leads recent upstream acquisition news with its plan to buy the international oil and gas operations of Veba Oil & Gas GMBH for $3.2 billion (Can.) in a deal that will make Petro-Canada the largest Canadian integrated oil and gas company.
The acquisition boosts Petro-Canada's production and total proved reserves by more than 70%, and production is expected to double in 5 years. The acquired properties are concentrated in the North Sea, North Africa, and northern Latin America.
In downstream news, two major deals were announced.
- Valero Energy Corp. reached an agreement to sell its San Francisco-area Golden Eagle refinery to Tesoro Petroleum Corp. for $1.08 billion. That transaction includes 70 retail service stations in northern California. Both Valero and Tesoro are based in San Antonio. The Federal Trade Commission last year mandated that Valero sell the refinery and service stations as a condition of its acquisition of Ultramar Diamond Shamrock Corp. (OGJ Online, Jan. 2, 2002).
- Lyondell Chemical Co., Houston, announced plans to buy Occidental Petroleum Corp.'s 29.5% share of Equistar Chemicals LP. Los Angeles-based Occidental will take an equity investment position in Lyondell, the cash proceeds from which Lyondell will use to fund the purchase of Occidental's stake in Equistar. This would bring Lyondell's ownership interest in Equistar to 70.5%. Millennium Chemicals Inc. holds the rest.
Other recent acquisitions include:
- Kinder Morgan Energy Partners LP, Houston, announced two acquisitions and a major terminals expansion program worth a total investment of $43 million. Purchases included Laser Materials Services LLC, Pittsburgh, and a 66% interest in International Marine Terminals Partnership (IMT), which operates a bulk terminal in Port Sulphur, La.
- A unit of Williams Cos. Inc., Tulsa, sold three natural gas pipeline systems in South Texas for $6 million to Hurd Investments, San Antonio, and a subsidiary of Copano Energy, Houston. Williams also plans to sell its large Midwest petroleum products pipeline and terminals, saying a potential buyer is Williams Energy Partners LP.
- Duke Energy Corp., Charlotte, NC, agreed to sell Duke Engineering & Services (DE&S) to Framatome ANP Inc., Lynchburg, Va.
In other company news, Noble Drilling Corp., Sugar Land, Tex., announced its board of directors has unanimously approved a corporate restructuring that will involve Noble Drilling changing its domicile from Delaware to the Cayman Islands.
Petro-Canada's acquisition
Closing of Petro-Canada's purchase of the Veba assets is subject to several conditions, including host government approvals and rights of first refusal affecting assets in Norway, Egypt, and Venezuela.
Royal Bank of Canada and Deutsche Bank AG, Canada Branch, agreed to underwrite the purchase. It is expected that the deal will close in stages during May-September.
Estimated combined production will be 400,000 boe/d-a 78% increase over Petro-Canada's current output. Petro-Canada's and Veba's combined proven reserves are more than 1.4 billion boe, a 71% increase over Petro-Canada's previous position.
Petro-Canada Pres. and CEO Ron Brenneman said the deal "positions Petro-Canada in some of the world's most prolific and high-potential petroleum basins, its size is significant but manageable, and it adds significant value for shareholders."
Veba's North Sea assets include stakes in Guillemot and Scott fields off the UK and in Hanze field off the Netherlands, production in Norway, and exploration interests in Denmark and the Faroes.
Petro-Canada said Veba has significant production with development potential in Libya, production in Syria, a small position in Egypt, an interest in the Cerro Negro heavy oil development in Venezuela, and a stake in a gas development off Trinidad and Tobago.
Brenneman said the international arena will become a fifth core business.
Petro-Canada will keep its headquarters in Calgary and will manage its international operations through a wholly owned subsidiary in Essen, Germany.
Several companies had expressed interest in Veba's international operations, including Woodside Energy Ltd. (OGJ Online, Jan. 28, 2001). BP PLC, which is proceeding with its planned acquisition for a 51% stake in Veba, has agreed to the transaction. Veba Oil owns Germany's largest chain of gasoline stations. Until 1999, the company was called Deminex GMBH.
Moody's Investors Service downgraded the senior unsecured debt ratings of Petro-Canada and confirmed its commercial paper rating. The current ratings outlook for Petro-Canada is stable, Moody's said.
The downgrade stemmed from increased debt and because the acquisition is expected to increase Petro-Canada's political risk profile, Moody's said.
Currently 97% of Petro-Canada's production comes from Canada, but 57% of pro forma 2002 production is expected to come from Canada with 25% coming from Libya, Syria, Vene- zuela, and Egypt.
Tesoro's refinery deal
Tesoro agreed to pay $945 million for the Golden Eagle plant plus the value of inventory at closing, estimated at $130 million. Also, Tesoro would make contingency payments of up to $150 million, which will be paid only if annual California refining margin spreads exceed the 1997-2001 average. The 5-year contingency period begins in 2003.
The transaction will be immediately accretive to earnings, Tesoro said. The transaction, subject to regulatory approval, is expected to close in April.
Bruce Smith, Tesoro chairman, president, and CEO, said, "The sale gives good financial benefit to shareholders and permits both companies to move forward with their strategies. California gains a new competitor in its refining and marketing industry, one capable of offering additional gasoline supply from our other operations in the western US."
Tesoro's combined throughput capacity will increase by more than 40% to 560,000 b/d, while its branded retail network will expand to 750 locations, including 100 stations in California.
Golden Eagle refinery produces 105,000 b/d of gasoline, about 70% of which is California Air Resources Board (CARB) Phase II reformulated gasoline, and it is the largest producer of CARB diesel.
Bill Greehey, Valero's chairman and CEO, said proceeds from the divestiture will be used to pay down debt and repurchase the company's stock.
Lyondell purchase
Dan Smith, Lyondell's president and CEO, said, "The transaction allows Lyondell to conserve cash at the trough of the chemical cycle while significantly increasing our proportionate share of Equistar's cash distributions as the chemical cycle improves."
He said the deal will accelerate Lyondell's debt repayment and improve its balance sheet.
Occidental will get 30-34 million shares of newly issued Series B Lyondell common with the exact number to be determined at closing. The shares will have the same rights as Lyondell's regular common with the exception of the dividend, which may be paid in stock or in cash. The Series B shares can be converted to regular common 3 years after issuance or earlier in certain circumstances. At yearend, Lyondell had 118 million shares outstanding.
Also, Oxy will get 5-year warrants to acquire 5 million shares of Lyondell regular common at $25/share. It will get a contingent payment equal to 7.38% of Equistar's cash distributions for 2002 and 2003, up to $35 million, payable in cash or common stock.
Ray Irani, Oxy chairman and CEO, and Stephen Chazen, Oxy CFO and executive vice-president, will join Lyondell's board.
Lyondell said the acquisition will be cash flow neutral and will not be immediately accretive to earnings.
Smith said, "On a normalized Equistar earnings level, which we believe to be approximately $1 billion/year of [earnings before income taxes, depreciation, and amortization], we believe this transaction will add significant value for Lyondell shareholders and bondholders."
Under terms of the Equistar partnership, Millennium has the option to participate in the acquisition of Oxy's portion of Equistar on a pro rata basis.
Equistar was formed in December 1997 with the combination of the olefins and polymers businesses of Lyondell and Millennium. Oxy joined the partnership in May 1998 with the contribution of the ethylene, propylene, ethylene oxide, and derivatives businesses of Occidental Chemical Corp.
Kinder Morgan acquisitions
Laser Materials Services operates 59 transload facilities in 18 states. The facilities handle dry-bulk products, including aggregates and plastics, and liquid chemicals.
The 59 locations are equipped for bimodal (rail-to-truck or truck-to-rail) operation and handled 6 million net tons of throughput in 2001. Customers of Laser own the complexes, and Kinder Morgan will serve as operator.
In the IMT transaction, Kinder Morgan purchased a one-third interest from Marine Terminals Inc. and a one-third interest from Glenn Springs Holdings Inc. The Port Sulphur location is a multipurpose import and export facility that handles 7 million tons/year of bulk products, including coal, petroleum coke, and iron ore.
"The acquisitions will complement existing assets in our rapidly growing terminals segment and are consistent with [our] philosophy of acquiring hard assets," said Richard D. Kinder, Kinder Morgan chairman and CEO.
In addition, Kinder Morgan has launched a major expansion project at its liquids terminal in Carteret, NJ.
The Carteret expansion program, which is being carried out by Kinder Morgan subsidiary Kinder Morgan Liquids Terminals LLC (KMLT), will add 400,000 bbl of storage within the next year. Currently, the facility's 261 tanks have 6.6 million bbl of storage capacity for a variety of petroleum and petrochemical products.
Jeff Armstrong, KMLT president, said that meeting the increasing service and expansion requirements of customers is the driving force behind the project.
"Throughput increased more than 27% in 2001, with anticipated volumes to exceed 70 million bbl this year. This program represents the first expansion of the petroleum assets at the Carteret terminal in more than 2 decades," Armstrong said.
Williams divestitures
The planned sale of the Midwest petroleum products pipeline and storage terminals would be in addition to, and would more than double cash proceeds from, Williams's earlier plans to sell noncore assets estimated to be as much as $750 million, said Steve Malcolm, Williams president and CEO.
"Although we've heard concern expressed about the timing of any potential asset sales, since Jan. 1 we have signed agreements on $56 million in sales, and we believe we could complete the sale of our products pipeline before the end of the second quarter," Malcolm said.
The pipeline systems already sold were Webb-Duval, Olmitos, and Cinco Compadres. Together, the trio totals 125 miles of natural gas pipeline with a nominal capacity of 250 MMcfd.
Copano became the operator. It bought 76% partnership interest in the Webb-Duval system, and 100% interest in the Olmitos and Cinco Compadres systems. Hurd holds 37.5% interest.
John Eckel, Copano's president and CEO, said, that the purchase expands Copano's portfolio of gas gathering assets that can be connected to the company's Houston central processing plant through an alliance with Kinder Morgan Texas Pipeline.
Duke Energy
Duke Energy said the DE&S divestiture helped align its business portfolio to focus on wholesale energy customers and markets.
"As Duke Energy pursues a focus on wholesale markets, it is appropriate to place DE&S with a company where the business mission is aligned," said Bruce Williamson, CEO of Duke Energy Global Markets.
The transaction is expected to close in second quarter; details of the transaction were not immediately available.
Two components of DE&S are not part of the sale. Duke Energy will establish Duke Energy-Energy Delivery Services, formed by the power delivery services component of DE&S. Leadership of the US Department of Energy Mixed Oxide Fuel (MOX) project also will remain with Duke Energy.
Framatome provides nuclear engineering and fuel services. The acquisition gives it an office in Charlotte, NC, along with its existing offices in Richland, Wash.; Atlanta; and Lynchburg, Va.
Noble Drilling
Noble Corp., the name of a Cayman Islands company expected to be formed as a subsidiary of Noble Drilling Corp., will become the parent holding company of Noble Drilling and the other companies in the Noble corporate group.
Upon completion of the restructuring, Noble Corp. and the Noble corporate group will continue to conduct the businesses now conducted by the Noble corporate group.
Subject to shareholder approval at the Apr. 25 annual meeting, the restructuring is expected to be completed in the second quarter.
Noble Drilling Chairman and CEO James C. Day said the corporate restructuring will provide greater operational and financial flexibility.
Each outstanding share of Noble Drilling common stock automatically will be converted into one Noble Corp. ordinary share. The stockholder rights plan was amended so that each outstanding right issued under the plan will expire immediately before the restructuring.