Two major transactions are furtherchanging the landscape of the Russian oil and natural gas sector.
OAO Yukos and OAO Sibneft announced plans to merge into a new company that will be Russia's largest oil and natural gas company and will rank among the world's largest oil producers.
The pending transaction signals the largest merger in Russia's economy, creating an international oil major that analysts predict will finance big development projects beyond Russia's borders.
In the other major deal, Marathon Oil Corp. agreed to acquire Khanty Mansiysk Oil Corp. (KMOC) for $275 million, including Marathon's assumption of all of KMOC's outstanding debt obligations.
New York-based Khanty Mansiysk Oil is a private US company focused on oil production in Russia. KMOC is developing nine oil fields in the Khanty-Mansiysk region of western Siberia.
In other recent company news:
- Williams Cos. Inc. agreed to sell its 54.6% interest in Williams Energy Partners LP to a new entity owned equally by two private equity firms as part of Williams' continuing efforts to improve its balance sheet.
Madison Dearborn Partners LLC and Carlyle/Riverstone Global Energy and Power Fund II LP agreed to pay $512 million in cash. The transaction also will remove $570 million of debt from Williams' consolidated balance sheet.
- Old Greenwich, Conn.-based Premcor Inc. has entered into a memorandum of understanding to sell its 70,000 b/d Hartford, Ill., refinery and some of the refinery's related assets to ConocoPhillips for $40 million.
- ChevronTexaco Corp. wants to sell its interests and resign operatorship of its Papua New Guinea joint venture as part of its drive to focus on assets more aligned with strategic growth objectives.
YukosSibneft
Pending regulatory approvals, YukosSibneft Oil Co. is expected to be operating by Dec. 31, the two companies said in a joint statement. The transaction will result in a $35 billion entity, of which Yukos shareholders will control 70% of the new company, analysts said.
Yukos is Russia's second-biggest oil producer behind OAO Lukoil, while Sibneft ranks fifth among that country's oil companies (OGJ, May 27, 2002, p. 20).
Upon closing, YukosSibneft will rank as the world's fourth largest nongovernment oil producer behind BP PLC, ExxonMobil Corp., and Royal Dutch/Shell Group.
The agreement, announced Apr. 22, calls for Sibneft's core shareholders to sell 20% of the company's stock for $3 billion in cash. It also outlines a complicated equity swap in which Sibneft core shareholders will exchange their remaining holdings in Sibneft at a ratio of 0.36125% of YukosSibneft for each 1% share in Sibneft.
YukosSibneft will make an offer to Sibneft's minority shareholders after receiving a fairness opinion from an investment bank, the joint statement said.
Russia Prime Minister Mikhail Kasyanov praised the merger announcement, saying that Russia stands to gain from a Russian oil firm that figures among global oil and gas giants.
"It's obvious that both the state and the private owners benefit from a stronger company, which has staked new ground on the market," Kasyanov was quoted as saying by the Interfax news agency.
The resulting company would have total proven reserves of 18.4 billion bbl of oil and 5.9 tcf of natural gas reserves based upon yearend 2001 reserves as calculated in accordance with the Society of Petroleum Engineers' methodology, the joint news release said.
Crude oil production would be 2.3 million b/d, or 29% of Russian oil production. The YukosSibneft figure includes Sibneft's share of Slavneft OAO production (OGJ, Jan. 6, 2003, p. 31). Using 2002 figures, this amounts to 754.2 million bbl/year.
YukosSibneft would include six principal refineries in Russia, the Mazeikiu Nafta complex in Lithuania, and additional interest in the Moscow and Yaroslavl refineries in Russia and Mozyr refinery in Belarus. These assets in 2002 refined a total 421.8 million bbl of oil. The new combined company also would have more than 2,500 filling stations—by far the largest retail marking chain in Russia.
Yukos Chairman and CEO Mikhail B. Khodorkovsky will be responsible for the executive manager of the new company, while Sibneft Pres. Eugene Shvidler will be proposed as chairman. Core shareholders want independent directors to constitute a majority of the board, the joint news release said.
"The new industrial giant, with its huge industrial and financial potential, will reach even higher business efficiencies, moving closer to our strategic goal of becoming a leader of the global energy market," Khodorkovsky said.
Shvidler called the merger "a superb alliance of progressive and like-minded companies with complementary strategic and management strengths, which effectively creates a new supermajor that will enhance value to its shareholders and better serve its millions of customers."
Tyler Dann, analyst with Banc of America Securities LLC, said, "We view consequences of such a deal for the integrated oil group as mixed to negativeU. We would not be surprised to see the combined Yukos-Sibneft attempt to expand its base beyond Russia's borders in order to diversify and lock up key markets, such as the US."
Dann suggested "downstream-heavy" companies such as Marathon Oil Corp. would be potentially subject to acquisition" by YukosSibneft. "It would appear to us that the game in Russia is getting more difficult for the western oil majors to win in light of less-favorable fiscal terms."
He referred to the elimination of production-sharing agreements for future oil development and domestic consolidation of Russian oil companies.
"In particular, we would view the Yukos-Sibneft deal as a mild negative for BP...and Total," Dann said.
YukosSibneft would be the biggest competitor to TNK-BP, a new joint venture firm expected to be finalized later this year (OGJ, Feb. 17, 2003, p. 34).
TotalFinaElf SA has been seeking to develop several fields in Russia, Dann noted.
Marathon
The agreement calls for a wholly owned Marathon subsidiary to be merged into KMOC, with KMOC continuing as the surviving corporation and as a wholly owned subsidiary of Marathon.
The transaction remains subject to approval by KMOC stockholders.
Royal Dutch/Shell units Enterprise Oil Overseas Holdings Ltd. and Enterprise Oil Exploration Ltd. collectively own 45% of the outstanding KMOC common stock and have until May 6 to either make a matching offer for the common stock they do not own or approve the transaction.
Currently, a majority of non-Enterprise stockholders have committed to approve the transaction. The transaction is expected to close by May 13.
Marathon said it would provide new reserves and future production estimates upon completion of the transaction.
Williams Energy Partners
Dearborn Partners and Carlyle/ Riverstone Global Energy and Power Fund II LP agreed to offer employment to more than 800 Williams employees affected by the partnership sale.
The deal will provide Williams with a pretax gain of at least $285-300 million. Including this transaction, Williams has agreed to sell assets for more than $2.6 billion in cash this year (OGJ, Aug. Apr. 21, 2003, p. 33). Last year, the company announced plans to resolve some liquidity problems (OGJ, Aug. 26, 2002, p. 37).
Williams Chairman, Pres., and CEO Steve Malcolm said, "This agreement moves us closer to wrapping up major asset sales and rounding out what Williams will look like in the future."
The sale of its stake in Williams Energy Partners ends Williams's nearly 4 decade participation in the oil sector, Malcolm said.
Williams Energy Partners' assets include a 6,700-mile refined products pipeline system and 39 storage terminals, an ammonia pipeline system, five marine terminal facilities, and 25 inland terminal facilities.
Subsequent to an anticipated May 15 closing, the partnership buyer's future resale of equity at net prices exceeding $37.50/unit could provide Williams with up to $20 million.
Premcor
One of the largest independent refiners in the US, Pemcor said the sale would result in a pretax charge of $16.6 million in the first quarter.
Premcor Chairman and CEO Thomas D. O'Malley said that the restructuring charge includes $9 million to reduce the refining assets from a $49 million carrying value to the $40 million sales price. The charge also includes $4.6 million for certain terminal assets and $3 million in ancillary costs.
Premcor closed its Hartford facility in September for lack of an economically viable solution to reconfigure the plant so that it could meet federally mandated environmental standards (OGJ Online, Sept. 24, 2002).
O'Malley said Premcor plans to continue to own and operate the Hartford terminal facility "to accommodate our wholesale petroleum product distribution business." Premcor also will carry the remaining Hartford terminal assets on its books.
The sale, which requires regulatory approval, is expected to close as early as the end of the first quarter, due to the refinery being shut down already, Prudential Securities Inc. analyst Andrew F. Rosenfeld said in a research note.
"Although no potential uses for the sale proceeds were given, we expect (Premcor) will either use the proceeds to partially fund future acquisitions or fund its significant capital expenditure requirements regarding the upcoming clean fuels standards mandated by the federal government," Rosenfeld said.
He pegged this clean-fuel spending by Premcor to top $725-775 million during the next 7 years.
On refining in general, Rosenfeld said, "We believe excellent fundamentals will bode well for refining margins to remain above normal this year. The fact that the current margin environment exists against a backdrop of very high crude oil prices is further evidence that the underlying economics of the business have improved substantially."
He expects elevated refining margins and high free cash flows, enabling debt reduction.
ChevronTexaco
The major is putting all its oil and gas production interests in Kutubu, Moran, Gobe Main, and South East Gobe oil fields in Papua New Guinea's Southern Highlands Province on the sales block.
The joint venture produces 53,000 b/d of oil. Completion of sale and appointment of an operator are expected by Oct. 31, ChevronTexaco said.
A subsidiary, Chevron Niugini Ltd. (CNGL), holds equity interests in the Kutubu, Moran, Gobe Main and South East Gobe fields; an exploration license; and two petroleum retention licenses.
Peter Robertson, ChevronTexaco vice-chairman said CNGL and its joint venture partners have invested more than $2.9 billion in exploration, development, and production.