El Paso Energy Partners LP-which is 28% owned by El Paso Corp. (EPC)-signed a letter of intent to acquire certain Texas midstream assets from EPC for $750 million, marking El Paso Energy's biggest acquisition to date.
The acquired assets include the 9,400 mile, 5 bcfd EPGT Texas intrastate pipeline. EPGT deliveries averaged 3.5 bcfd during 2001.
El Paso Energy also will acquire the 1,300 mile, 465 MMcfd Permian basin gathering systems. Assets include a 42.3% nonoperated interest in the Indian Basin gas processing and treating plant in Eddy County, NM, and associated gathering lines.
In the downstream sector, Tesoro Petroleum Corp. amended terms for its purchase of the 168,000 b/d Golden Eagle refinery and 70 associated retail stations in California from Valero Energy Corp., paying an additional $50 million at closing in lieu of contingency payments of up to $150 million that would have been spaced over 5 years.
That will boost the total closing price of that package to $1.25 billion from the previously agreed $1.075 billion, said the two San Antonio-based firms.
Meanwhile, BP PLC agreed to sell its Yorktown, Va., refinery to Giant Industries Inc., Scottsdale, Ariz., for $127.5 million, plus the value of inventory at closing, which is estimated at $42 million. Last year, BP sold refining and marketing assets in Salt Lake City and Mandan, ND, to Tesoro (OGJ Online, Sept. 7, 2001).
Other mergers and acquisitions recently announced include:
- Tulsa-based contract drilling and service company Helmerich & Payne Inc. said it would spin off its oil and gas division as a separate public firm to be called Cimarex Energy Co., which will in turn acquire Key Production Co. of Denver.
- Houston-based oil and gas contract driller Nabors Industries Inc. said it would acquire integrated energy services company Enserco Energy Service Co. Inc., Calgary, in a deal worth $252 million plus $36.9 million (Can.) in assumed debt.
- BG Group PLC bought Enron Oil & Gas India Ltd. (EOGIL) for a revised price of $350 million from the bankrupt Enron Corp., Houston. But Oil & Natural Gas Corp. Ltd. (ONGC) is disputing BG's right to operate the former EOGIL properties.
- BJ Services Co., Houston, plans to acquire rival Osca Inc., Lafayette, La., a provider of oil and gas well completion fluids, completion services, and downhole completion tools, for $420 million.
El Paso acquisition
Terms call for El Paso Energy to pay $560 million in cash and $190 million in kind, which consists of the Prince tension leg platform (TLP) and related field royalty interest. The transaction will be financed through debt and equity financing, the company said. Subject to regulatory approvals, the transaction is expected to close in the first quarter.
As part of the transaction, El Paso Energy will transfer its Prince TLP and 9% overriding royalty interest in Prince field to EPC unit El Paso Production Co. El Paso Energy will retain third-party marketing rights for the remaining platform capacity and an option to repurchase the platform at the end of the field's life.
El Paso Energy CEO Robert Phillips said his company has acquired more than $1.5 billion of midstream assets, including this transaction, from EPC since the latter became the general partner in 1998.
"Going forward, we expect to continue developing greenfield transportation infrastructure and platform projects in the Gulf of Mexico, like the recently announced Cameron Highway oil pipeline," Phillips said (OGJ Online, Feb. 13, 2002). Cameron Highway is a proposed $450 million, 380 mile pipeline to deliver deepwater crude oil from an offshore hub to Port Arthur and Texas City, Tex.
Tesoro's amended terms
Under the original sales agreement, the package price for the refinery and stations was $945 million plus the value of inventory at closing, estimated at $130 million. Additional contingency payments up to $150 million were to be paid if annual California refining industry spreads exceeded the 1997-2001 averages during a 5-year period starting in 2003 (OGJ Online, Feb. 5, 2002).
Company officials cited "possible concerns" among the Federal Trade Commission and state regulators about the proposed contingency payment. A more expedient transaction is in the best interests of all parties, especially the employees, they said. The sale is expected to close in April.
Divestiture of the Golden Eagle refinery and associated retail stations was mandated last year under consent orders by the FTC and state regulators in California and Oregon as a condition for Valero's merger with Ultramar Diamond Shamrock Corp. (OGJ Online, Jan. 2, 2002).
The acquisition expands Tesoro's combined refining capacity more than 40% to nearly 560,000 b/d. Its branded retail network will expand to 750 locations, including nearly 100 stations in California.
Tesoro officials have said the acquisition will be immediately accretive to earnings exclusive of synergies of $30-50 million/year. The company will fund the acquisition through a combination of debt and equity.
The Golden Eagle refinery produces some 105,000 b/d of gasoline, about 70% of which is California Air Resources Board (CARB) Phase II reformulated gasoline. It is the largest producer of CARB diesel. A project is under way to increase CARB production at the plant.
Valero has said it plans to use proceeds from the sale to pay down debt and buy back stock.
Giant's refinery acquisition
Giant Industries's refinery deal, which is expected to close in the second quarter, also includes potential payments up to $25 million if certain refining margin levels are met during 2003-05.
The refinery-Virgina's only one-has a crude oil processing capacity of 62,000 b/d. The product slate is 50% gasoline, 33% distillates and 15% other products.
Giant Industries Chairman and CEO Jim Acridge said, "This purchase more than doubles our refining capacity, bringing this total to approaching 100,000 b/d." He said the refinery is well-positioned to deliver product to many terminals on short notice to accommodate unexpected shortages and is capable of exchanging products to and from the Gulf Coast and New York Harbor.
Giant operates the 26,000 b/d Ciniza refinery 17 miles from Gallup, NM, and the 18,600 b/d Bloomfield refinery near Farmington, NM. The company also has a 260 mile crude oil gathering pipeline system based in Farmington, NM, and products distribution terminals in Albuquerque, NM, and Flagstaff, Ariz.
H&P-Key Production deal
Based on Key Production's current share price, newly formed Cimarex will have a pro forma equity market value of $600 million, the companies said. The new company will be based in Denver, while its operational headquarters will be based in Tulsa.
Under terms of the deal, H&P will distribute all of Cimarex's outstanding common stock shares to its shareholders. Wholly owned Cimarex will then merge with Key Production in a stock-for-stock deal, in which H&P shareholders will receive 0.53 shares of Cimarex common stock for each share of H&P common. Key Production shareholders, meanwhile, will receive one share of Cimarex common stock for each share of Key common.
Once the deal is completed, holders of H&P outstanding common shares will own 65.25% of common stock of Cimarex, and Key Production shareholders will own 34.75%, both on a diluted basis. Also, the new firm will seek to change its accounting method from successful efforts to full cost, which is used by H&P.
Mick Merelli will serve as chairman, CEO, and president of the new Cimarex while serving as vice-president, exploration and production, for H&P. Steve Shaw will serve as executive vice-president of the new company.
Both companies have said that, at this time, "substantially all" current employees of Key Production and H&P's oil and gas division will be retained by the new firm.
On a pro forma basis, Cimarex will have proved reserves of 392 bcfe as of Dec. 31, 2001, of which 78% is natural gas and 98% is proved developed. Combined production of the new firm for 2002 will be 190 MMcfed, the companies said. Operations will be focused 64% in the Midcontinent region, mainly in Oklahoma and Kansas.
Both company boards have unanimously approved the transaction. Closing of the deal, which is expected to occur in the third quarter, awaits final approval from Key Production shareholders as well as regulators; no approval will be required by H&P shareholders, the companies said.
The transaction will be "a good move for Key [Production]," said James Mullins, research associate, oil and gas, with Houston-based Raymond James & Associates Inc. The new company will gain some high-quality gas assets and will gain a low level of debt, he said, giving them a strong balance sheet.
"The deal boosts the new company into the mid-cap level, giving it increased access to the capital markets," Mullins said. Key Production is currently at the $220 million capitalization level.
Nabors-Enserco
Nabors said it would offer $15.50 for each Enserco common share. The deal has been unanimously approved by Enserco's board and needs the approval of two thirds of the company's shareholders.
Nabors's worldwide land drilling fleet includes 500 rigs and 740 workover and well servicing rigs, which includes 52 in Canada. Its offshore equipment comprises 43 platform rigs, 16 jack ups, and 3 barge rigs in the Gulf of Mexico and elsewhere.
Enserco, though its Bonus Well Servicing and H&R Drilling units, operates 193 Canadian service rigs and 30 drilling rigs. "Enserco's assets are relatively new, in excellent condition, and well-suited for the increasingly important role that Canada is playing in the North American natural gas supply picture," said Gene Isenberg, Nabors chairman and CEO.
Following the announcement, Standard & Poor's said Nabors's acquisition would not affect its credit ratings.
"The acquisition should strengthen Nabors's position in the Canadian drilling and well servicing industries by adding 193 service rigs and 30 drilling rigsellipse," S&P said.
"Nabors's pro forma financial profile," S&P added, "could strengthen modestly in 2002 as the company is likely to generate $100 million to $300 million of free cash flow after capital expenditures, despite an expected severe North American industry downturn."
BG Group
On Oct. 3, 2001, BG Group said it would pay $388 million for EOGIL, but the price was lowered $38 million after Enron's Chapter 11 bankruptcy filing.
EOGIL assets include 30% interests in Tapti gas field and Panna-Mukta oil and gas field, and a 62.64% interest in the CB-OS/1 exploration license. All are on India's west coast.
The acquired company will be renamed BG Exploration & Production India Ltd.
Partners in the Tapti and Panna- Mukta offshore operations are ONGC with 40% and Reliance Industries Ltd., 30%. The other partners in the CB-OS/1 license are Hindustan Oil Exploration Co. 17.36%, Tata Petrodyne 10%, and ONGC 10%.
ONGC has asked BG to rescind operatorship and said, "We've decided that operatorship should be with us. Operatorship can't be transferred automatically with the sale. It's based on a consensus among partners."
Legal negotiations are to be scheduled between the partners, but Indian bureaucracy could mean the talks will be lengthy. BG Group is expected to defend the status quo, citing its long experience of developing offshore gas fields (OGJ Online, Feb. 19, 2002).
The issue could affect BG's ambitions to become a major supplier in one of the world's fastest-growing gas markets. India's need for imported gas may increase fivefold by 2012 to 218 million cu m/day, according to Indian government statistics.
Panna, Mukta, and Tapti fields hold more than 170 MMboe and are an important part of BG's strategy in India. It also owns 65% of Gujarat Gas Co. (GGCL), which supplies 40 MMcfd in the western province of Gujarat. And BG owns 50% of Mahanagar Gas Ltd. (MGL), which operates the gas distribution network in Mumbai, India's commercial capital.
BJ Services deal
BJ Services's proposed acquisition has the support of Great Lakes Chemical Corp., Indianapolis, which owns 53% of Osca.
BJ Services estimates a $20 million cost savings after the companies are combined, and the deal is expected to be accretive to earnings in 2003, said BJ Services CEO J.W. Stewart.
James K. Wicklund, managing director of energy research at Banc of America Securities in Houston, said, "BJ Services paid a full price, but they got a very good company. I'm very positive on the deal."
Osca has a stronger tool business and also is stronger in the deepwater Gulf of Mexico than is BJ Services, Wicklund said, adding that BJ Services has a stronger market share of shallow drilling business and is stronger than Osca in its onshore business.
"Now you can push Osca's tool technology through BJ Services's land infrastructure and reap much more benefit at much less cost," than the two companies could have achieved as separate companies, Wicklund said.