COMPANY NEWS: Plains E&P to acquire 3TEC Energy for $432 million

Feb. 17, 2003
Plains Exploration & Production Co. has inked a deal to acquire 3TEC Energy Corp. for a total of $432 million in cash and stock. As part of the agreement, each 3TEC stockholder will receive $8.50 in cash and 0.85 share of Plains E&P common stock for each share of 3TEC stock held. Both companies are based in Houston.

Plains Exploration & Production Co. has inked a deal to acquire 3TEC Energy Corp. for a total of $432 million in cash and stock. As part of the agreement, each 3TEC stockholder will receive $8.50 in cash and 0.85 share of Plains E&P common stock for each share of 3TEC stock held. Both companies are based in Houston.

In other recent company news:

  • A unit of Royal Dutch/Shell Group has purchased the interests in Kazakhstan owned by subsidiaries of Oklahoma City-based Kerr-McGee Corp. for $165 million.
  • Talisman Energy Inc., Calgary, announced a delay in the sale of its 25% interest in the Greater Nile Oil Project (GNOP) to New Delhi-based ONGC Videsh Ltd.
  • HSBC Investment Bank PLC signed a facility agreement with National Petrochemical Co. of Iran (NPC) providing a $108 million credit to finance the export of equipment and services for the construction of a 600,000 tonne/year styrene monomer plant at Bandar Assaluyeh in Iran.

Plains's 3TEC deal

Plains E&P said the acquisition will give the company "significant exploration potential" in South Louisiana's Gulf Coast region. In addition, the company said the deal would provide it with new core areas in East Texas and on the Gulf Coast. Plains E&P's primary area of production is in Southern California.

"This resulting property base is expected to supply several years of drilling locations and should expand through an extensive, ongoing 3D seismic acquisition and evaluation program," Plains E&P said in a statement. "3TEC has a 3-year exploration drilling inventory with multiple separate prospects which complements (our) development programUparticularly the Inglewood field in Southern California."

The acquisition also will give Plains E&P a production mix of 37% natural gas and 63% oil, the company said. The company's proved reserve base, meanwhile, will be 19% gas and 81% oil, it said. Plains E&P's total proved reserves will be 302 million boe at yearend 2002. Plains E&P's proved developed reserves as a percentage of total reserves are expected to increase to 58% from 54% while the reserves-to-production ratio will decrease to 20.9 years from 27.1 years, the company reported.

"3TEC's high-quality, natural gas-oriented properties bring more balance to our reserve base and production mix and diversity to our risk profile," said James C. Flores, Plains E&P chairman and CEO. "3TEC's high-impact exploration program is very complementary to (Plains E&P's) substantial inventory of low-risk development drilling," he added.

Flores will remain chairman and CEO of the company, and Plains E&P's current executive staff will continue in their capacities. The company's board will increase in size by two directors, which are to be appointed by 3TEC.

Based on the transaction value and $80 million of unproved properties, the deal implies a proved reserve purchase price of $1.19/Mcfe, the companies said.

Shell's Kazakhstan move

Among the assets acquired by Shell Kazakhstan Development were a 50% interest in Arman producing field, 100% interest in the Mertvyi Kultuk exploratory area, and a 1.75% working interest in the Caspian Pipeline Consortium.

During the fourth quarter of 2002, Kerr-McGee's net production from these properties was about 2,500 b/d of oil, the company said.

Luke R. Corbett, Kerr-McGee chairman and CEO, called the divestiture "consistent with (its) strategy of focusing on the development of core areas in high-potential trends."

Corbett added that the sale's proceeds would be used to pay down the company's debt.

The transaction, which is expected to close Mar. 31, will be effective Jan. 1, 2002.

Talisman delays GNOP sale

Talisman has not set a new date for the expected sale of GNOP, but officials expressed confidence the agreement with ONGC Videsh would be acceptable to the other members of the consortium.

"The government of Sudan has approved the transaction, and we believe it will happen," Talisman spokesman Barry Nelson told OGJ. "Our earlier forecast dates for completion were optimistic, so we are not setting another deadline."

Sudanese Oil Minister Awad Al-Jaz said Feb. 3 that the $1.2 billion sale should be completed within days.

"It's on the right track," said Al-Jaz, adding that Talisman's partners are expected to give their approval for ONGC Videsh to take over the Canadian company's 25% share in GNOP.

Chinese National Petroleum Co. owns 40% of GNOP, which produces around 250,000 b/d of oil, with Malaysia's Petronas (25%) and state-owned Sudanese company Sudapet (5%) holding the remaining equity.

An industry source told OGJ that sale of Talisman's assets had been held up when an existing partner wanted to increase its stake in the project. He did not name which partner wanted the increased share.

Talisman announced its intention to sell last October, saying it expected the transaction to be completed by the end of 2002, subject to approvals.

"The completion of the transaction is subject to certain conditions, primarily relating to obtaining consents from the government of Sudan and the other consortium members and to the waiver of expiry of rights of first refusal," Talisman said.

Talisman's Pres. and CEO Jim Buckee, on announcing the sale, said, "Talisman's shares have continued to be discounted based on perceived political risk in-country and in North America to a degree that was unacceptable for 12% of our production. Shareholders have told me they were tired of continually having to monitor and analyze events relating to Sudan."

The company had long defended its work in Sudan against media reports that its involvement in CNOP contributed to the country's ongoing civil war, as well as to human rights abuses.

"It was a determined campaign carried out by important people in the UK and the US which sought to undermine Talisman's work in the region," one London-based observer of Sudan told OGJ. "The leaders of the campaign, many of them with missionary zeal, targeted large institutional investors in the hope of getting them to drop Talisman's shares."

Talisman acquired its operatorship and 25% interest in GNOP in October 1998 through the acquisition of Arakis Energy Corp. for about 8.9 million common shares of Talisman (OGJ, Oct. 19, 1998, p. 44).

Talisman's acquisition provided an infusion of capital that enabled the consortium to complete a 930-mile pipeline to transport oil from fields in southern Sudan to an export terminal near Port Sudan on the Red Sea.

The pipeline began filling with crude in July 1999, and the first cargo of "Nile Blend" departed the export terminal in early September 1999. Originally constructed to move 150,000 b/d of oil, the pipeline has a current capacity of 250,000 b/d and can be expanded to 450,000 b/d.

HSBC to provide NPC plant funds

HSBC's agreement is guaranteed by the UK Export Credits Guarantee Department (EGCD), while reinsurance for part of the facility was obtained from the Italian export credit agency, Instituto per i Servizi Assicurativi del Commercio Estero (SACE)

Industry sources told OGJ that the UK division of Italy's Snamprogetti SPA, ENI SPA's engineering and main contracting company, will set up the plant under a contract covering the full range of works and services, except for civil works and erection. Snamprogetti will use licensed technology from ENI and will carry out the project with Iran's Sazeh Consultants.

The executive director of Iran's massive South Pars petrochemical development project, Abbas Peivandi, earlier announced that the Italian company would invest $196 million in the facility, $122.3 million of which would be in foreign exchange and the rest in Iranian rials.

Nasser Homapour, HSBC's senior representative in Iran, told OGJ that completion of the transaction "represents an important step in HSBC's progressive engagement with Iran in general, and NPC in particular."

The new agreement marks HSBC's third export credit transaction with NPC in the past 12 months, all of them involving NPC, Snamprogetti, and Sazeh.

In February 2002, HSBC signed a $33.6 million export credit to Bank Tejarat, also guaranteed by EGCD. The credit is to finance construction of a 140,000 tonne/year carbon monoxide plant at Bandar Iman awarded by NPC subsidiary Fanavaran Petrochemicals to Snamprogetti Ltd. UK and Sazeh Consultants.

Under terms of the contract, Snamprogetti will provide the technology license, basic engineering, equipment, and technical assistance, while Sazeh will carry out the detailed engineering and supply locally manufactured equipment.

In March 2002, HSBC also agreed to act as lead arranger in the cofinancing of a $155 million export credit facility for an ammonia and urea plant being constructed for NPC, again by Snamprogetti and Sazeh.