PetroCorp's growth spurt results in its pending sale to Unit

Oct. 27, 2003
PetroCorp Inc has grown rapidly by acquiring oil and natural gas producing properties in the US and Canada.

PetroCorp Inc has grown rapidly by acquiring oil and natural gas producing properties in the US and Canada.

That caught the attention of Tulsa rival Unit Corp., which is buying PetroCorp for $182 million (OGJ Online, Aug. 15, 2003).

PetroCorp Pres. and CEO Gary R. Christopher
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Gary R. Christopher, PetroCorp president and CEO, declined to be interviewed, saying the company is in a "quiet period" because of the pending transaction, expected to be finalized in November.

Formed as a privately held company in July 1983, PetroCorp currently focuses on the acquisition, exploration, and development of oil, natural gas, and NGL reserves in Oklahoma, Texas, Mississippi, Louisiana, Colorado, and Kansas. It closed the sale of its two Canadian subsidiaries in March.

The company went public in 1993 and moved its headquarters from Houston to Tulsa in January 2000.

As of Dec. 31, 2002, PetroCorp reported total reserves of 38.8 bcf of natural gas and 2.7 million bbl of oil. It participated in 11 wells during 2002, including its 100% interest in a 7,800 ft Miocene gas well off Matagorda Island, Tex.

In the US Midcontinent, PetroCorp has interests in gas fields scattered throughout western Oklahoma, including up to 10% in wells drilled below 15,000 ft in Cement field in Caddo County, Okla. Other fields include Cheyenne and Eakly Weatherford, which are mature, deep-gas areas.

The company's strategy has been to acquire long-life gas reserves. It says it prefers acquisitions that provide additional potential through development or exploitation efforts as well as exploratory drilling opportunities. PetroCorp records showed that it was not participating in any significant exploratory projects as of Dec. 31, 2002.

Management arrangement

In August 1999, PetroCorp signed a management agreement with its largest shareholder, Kaiser-Francis Oil Co., Tulsa. Kaiser-Francis provides the management, technical, and administrative support for PetroCorp for a $1.5 million annual fee.

The arrangement enabled PetroCorp to cut its administrative expenses to $1.5 million in 2000 from $4.3 million in 1999. Cost-cutting measures including laying off 53 employees and closing offices in Oklahoma City, Houston, and Calgary.

"Through its management agreementUthe company has been able to allocate a significant portion of cash flow to expand development activities," PetroCorp said in documents filed with the US Securities and Exchange Commission.

Christopher, formerly a Kaiser-Francis executive and a PetroCorp board member since 1996, was named Petrocorp president and CEO in August 1999.

Subsequently, PetroCorp acquired Southern Mineral Corp., Houston, increasing its proved reserves by 80% (OGJ Online, May 9, 2001).

"As the year 2002 progressed, product prices dramatically increased, and we found it increasingly more difficult to acquire additional oil and gas reserves. Nearly all oil and gas reserves were selling at prices well above where we felt comfortable purchasing. Therefore, we began to investigate possible sale or merger candidates," Christopher said in a 2002 letter to shareholders.

Consequently, PetroCorp divested 50% of its oil and gas assets. In October 2002, the company sold its interest in Escambia County, Ala., for $11.5 million. In addition, PetroCorp sold its two Canadian subsidiaries, PCC Energy Inc. and PCC Energy Corp., to Enerplus Resources Fund, Calgary, for $112 million total.