BP PLC, the Alfa Group, and Access-Renova (AAR) completed the deal to combine their Russian and Ukrainian oil and gas businesses, which will serve as the final step in the formation of TNK-BP, a new company owned and managed 50:50 by BP and AAR.
Terms called for BP to pay AAR $2.6 billion in cash for its stake in the new company, together with three payments of $1.25 billion/year in BP shares payable on the anniversaries of the Aug. 29 closing.
In addition, BP and AAR agreed to incorporate AAR's 50% interest in OAO Slavneft into TNK-BP in return for a cash payment of $1.35 billion from BP, the companies said.
In other upstream moves:
- Husky Energy Inc., Calgary, agreed to acquire Marathon Canada Ltd. and the Western Canadian assets of Mara- thon International Petroleum Canada Ltd.—both units of Marathon Oil Corp., Houston—for $599 million. Subsequently, Husky agreed to sell part of the Marathon Canadian properties to EOG Resources Inc., Houston, for $320 million.
- Patina Oil & Gas Corp., Denver, agreed to acquire private, Denver-based Cordillera Energy Partners LLC in a transaction valued at $244 million.
- Unit Corp., Tulsa, signed a merger agreement with PetroCorp Inc., also of Tulsa, for $182 million.
In downstream news:
- Citgo Petroleum Corp., Tulsa, confirmed that it is considering moving its headquarters to Houston as part of a new global vision for Petróleos de Venezuela SA.
- Frontier Oil Corp., Houston, filed a lawsuit in Delaware Chancery Court against Dallas-based Holly Corp. alleging that Holly breached a contract by trying to amend terms regarding a $450 million merger agreement between the two firms. In turn, Holly counter sued Frontier for breach of contract.
In other recent company news:
- The US Ninth Circuit Court of Appeals in San Francisco has ordered a US District Court in Anchorage to review the punitive damages awarded against ExxonMobil Corp. from the 1989 Exxon Valdez oil tanker spill.
TNK-BP JV
"The creation of TNK-BP represents great progress towards meeting BP's long-term commitment to Russia," said BP Chief Executive John Browne. "In just 7 months, a truly major oil and gas company has emerged as an operating and competitive reality. The addition of the Slavneft interest into TNK-BP represents an important step in the building of the future of the company," he add- ed.
BP said that, "the main transaction did not for the moment include its share of the Sakhalin interest, which it originally intended to contribute to TNK-BP. The formation of a Sakhalin joint venture with license partner [OAO] Rosneft was still under negotiation, and the Sakhalin interest could be contributed to TNK-BP at a later date."
The exclusion of Sakhalin, together with interest and other minor adjustments, accounted for the slight rise in its initial cash payment to AAR to $2.6 billion, up from the $2.4 billion estimate announced in June (OGJ Online, July 15, 2003).
The completion of the Slavneft deal, BP said, is expected before Dec. 31, pending approval from the regulatory authorities of the European Union, Russia, and Belarus. The deal will be effective retroactive to May 1.
TNK-BP, which is now Russia's third largest oil and gas company, produces 1.2 million b/d of oil from its main fields in West Siberia and the Volga Urals region. The Slavneft acquisition will increase the newly combined firm's production by 160,000 b/d from 1.2 million b/d of oil.
Excluding Slavneft, TNK-BP will have a workforce of about 113,000 and 5.2 billion boe of proven reserves, of which 3.2 billion boe are expected to be recovered before the leases expire.
Husky's Marathon acquisition
"The purchase of Marathon Canada will complement our existing Western Canada property base," said Husky Pres. and CEO John C.S. Lau. Hong Kong tycoon Li Ka-shing controls Husky.
The sales price of the reserves equates to $8.50/boe, a Marathon news release said. In turn, EOG Resources said its Canadian subsidiary agreed to acquire natural gas properties in the Wintering Hills, Drumheller East, and Twining areas of southeast Alberta.
The EOG acquisition, expected to close Oct. 1, involves properties that are adjacent existing EOG operations or are properties in which EOG already has a working interest. The transaction value, reserves, and working interests in the properties are subject to adjustment if preferential rights on the properties are exercised.
The Marathon divestitures are part of its asset rationalization program. Other asset sales this year include Marathon's sale of its 50% interest in Clam Petroleum BV to its joint venture partner, Burlington Resources Inc., Houston, for $100 million (OGJ, June 9, 2003, p. 30).
Patina-Cordillera deal
Patina said the Cordillera acquisition, expected to close Oct. 1, would increase its proved reserves by 235 bcfe, or roughly 20%. Cordillera will receive $240.5 million in cash, plus 5-year warrants to purchase 500,000 shares of Patina common stock for $45/share.
The reserves being acquired are 93% natural gas. Net production from the properties is more than 27 MMcfd of gas and 600 b/d of oil.
The transaction includes interests in 600 producing wells in the Anadarko basin of western Oklahoma and the Texas Panhandle, the San Juan basin in New Mexico's Rio Arriba and San Juan counties, and the Permian basin.
Unit-PetroCorp merger
Through their merger agreement, Unit is acquiring PetroCorp's oil and natural gas properties, which are primarily in Texas and Oklahoma. Last year, PetroCorp reported reserves of 38.76 bcf of natural gas and 2.7 million bbl of oil. Closing is expected in the fourth quarter.
The transaction remains subject to two thirds of PetroCorp's outstanding shares and other customary closing conditions. Already, PetroCorp shareholders representing 50% of the outstanding shares have agreed to support the deal.
Unit CEO John G. Nikkel said, "The acquisition fits well with Unit's current core area of operations, which will help us to further develop and exploit new fields."
Citgo headquarter move?
Citgo Pres. and CEO Luis Marín commissioned the study Aug. 1 to examine the implications of such a move of the company's headquarters (OGJ Online, July 23, 2003). Also, Marín named Executive Vice-Pres. Antonio Rivero to direct a task force examining the move's implications.
The study is expected to reach completion by Dec. 31. PDVSA's new global vision includes consolidating all of its international investments into one location, a news release said.
One of the biggest US refiner-marketeers, Citgo employs 1,000 people in Tulsa. The company has been at its existing location since 1983 when it was spun off from the former Cities Service Co., which was acquired by Occidental Petroleum Corp. in 1982.
In an August e-mail to employees, Marín said, "If the decision is made to relocate, you can be assured that your welfare will be the highest priority."
In addition to Citgo, Venezuela's various foreign investments include PDV Services Inc., the procurement affiliate in Houston; Hovensa LLC, a joint venture in the Virgin Islands with Amerada Hess Corp.; a Chalmette Refining LLC JV with ExxonMobil Corp. at the Chalmette, La., refinery; the Merey-Sweeney LP JV with ConocoPhillips in Sweeney, Tex.; and PDVSA's European investments.
Frontier, Holly lawsuit
Holly and Frontier originally agreed to a transaction involving cash and stock (OGJ, Apr. 14, 2003, p. 34). But Holly since has said it wants an all-cash transaction because of concerns about Frontier's financial exposure to environmental lawsuits in California.
In court documents, Frontier said the value of the proposed deal would have stayed the same. The original terms called for Holly stockholders to receive one share of Frontier common stock for each outstanding share of Holly common stock, plus a $172.5 million cash payment.
Frontier Chairman and CEO James R. Gibbs said, "While we preferred to proceed with the merger and continue to believe that it was in the best interests of both Frontier and Holly shareholders, Holly has backed out of the merger agreement."
Holly denies that it "repudiated or breached the merger agreement" and maintains that it did not exercise its various termination rights under the merger agreement.
In its lawsuit, Holly said Frontier breached the merger agreement by claiming that the agreement is no longer in existence. A December trial date was scheduled, Holly said.
ExxonMobil damages
An original punitive damages award totaling $5 billion against ExxonMobil was reduced last year to $4 billion. Both the plaintiffs and ExxonMobil appealed that decision to the Ninth Circuit court.
Last month, the Ninth Circuit panel instructed US District Judge H. Russel Holland in Anchorage, Alas., to review the case in light of a recent US Su- preme Court ruling in a case known as Campbell vs. State Farm. Punitive damages in that case were limited.
"The Valdez oil spill was a tragic accident that the company deeply regrets. The company took immediate responsibility for the spill, cleaned it up, and voluntarily compensated those who claimed direct damages," ExxonMobil said in a press release.
The Exxon Valdez grounded on Bligh Reef on Mar. 24, 1989, and spilled 242,000 bbl of oil into Alaska's Prince William Sound (OGJ, Apr. 3, 1989, p. 26).