Company News: Occidental to acquire Vintage for $3.8 billion

Nov. 21, 2005
Occidental Petroleum Corp. last month agreed to acquire Tulsa independent Vintage Petroleum Inc.

Occidental Petroleum Corp. last month agreed to acquire Tulsa independent Vintage Petroleum Inc. for $3.8 billion and the assumption of $550 million of Vintage debt. Oxy expects to finance the acquisition-and a 9 million Oxy share stock repurchase program-from $1.7 billion of cash on hand as of Sept. 30 plus additional cash generated in the fourth quarter. Vintage is expected to have $225 million in cash at yearend.

In other recent company news:

• A subsidiary of Calgary independent Talisman Energy Inc. agreed to acquire British producer Paladin Resources PLC for $2.5 billion (Can.). Talisman Energy Resources Ltd. plans to invest more than $1 billion on Paladin acreage during 3 years and believes it can raise Paladin production to more than 70,000 boe/d from the current 46,000 boe/d.

• Provident Energy Trust agreed to buy EnCana Corp.’s NGL business for $586 million, subject to closing conditions and regulatory approvals. Both companies are based in Calgary.

• South Korean refiner SK Corp. has reduced its bid for Inchon Oil Refinery Co. Ltd. by 160 billion won to about 3.04 trillion won, industry sources said.

• Houston Exploration Co. announced plans to divest its entire Gulf of Mexico asset base as it shifts its strategy to become a pure onshore US gas producer.

• Shares of Aabar Petroleum Investments Co. began trading on the Abu Dhabi Securities Market Nov. 19 in what the company calls a first for the Persian Gulf region.

• Kerr-McGee Corp. has agreements with multiple parties for the sales of onshore oil and gas properties with gross proceeds expected to be $510 million.

Oxy-Vintage

“On a per/share basis, we expect the acquisition to be immediately accretive to cash flow, free cash flow, and earnings,” said Oxy Chairman and Chief Executive Ray R. Irani.

Irani said Vintage’s assets were “an excellent strategic fit for Oxy,” adding to its core areas in California, the Middle East, and Latin America. Combining Vintage’s domestic and international assets with Oxy’s existing portfolio will enhance the competitive ability of the combined company, said Vintage Chairman and Chief Executive Charles C. Stephenson Jr.

At yearend 2004, Vintage had proved reserves of 437 million boe-50% of which were in Argentina and 32% in the US-and 421 million boe of probable and possible reserves. During the second quarter of this year, its total production averaged 76,000 boe/d, with Argentina contributing 37,000 and California, 11,000 boe/d.

At the same time, Oxy had total proved reserves from all sources of 2.53 billion boe. The acquisition is expected to increase Oxy’s reserves to a record high of 3 billion boe and extend its reserve life at current production levels to 12.7 years from 12.2 years.

The company plans to invest $150-200 million/year to grow Vintage’s reserves and production and “expects to realize significant synergies with [general and administrative] expense reductions of $40-60 million/year and exploration capital expense reductions of about $100 million/year.”

Oxy said it could apply enhanced oil recovery and exploitation techniques to Vintage’s operating assets in California, which will be incorporated into Oxy’s nearby southern San Joaquin Valley and Sacramento Valley operations. Also in Latin America, Oxy will assimilate Vintage assets into its existing Venezuelan operations, where it had combined second quarter net production of 70,000 b/d of oil.

Vintage’s second quarter production in Yemen averaged nearly 4,000 b/d of oil from assets that also are contiguous to Oxy’s existing operations, offering growth opportunities and operational synergies. Oxy indicated an interest in divesting nonstrategic Vintage assets in East Texas, along the Gulf Coast, and in the Midcontinent region. These assets accounted for 19,000 boe/d of Vintage’s second quarter production this year.

The Vintage transaction is expected to close in the first quarter of 2006, subject to regulatory approvals.

Talisman-Paladin

Paladin has producing interests in the Norwegian, UK, and Danish sectors of the North Sea, as well as in Australia, Indonesia, and Tunisia. It also has exploration acreage in Gabon and Romania.

Talisman estimates Paladin’s proved plus probable reserves at 190 million boe. Of Paladin’s production, 37% is in the Norwegian North Sea, 33% in the UK North Sea, and 7% in the Danish North Sea. The acquisition will provide Talisman with 600,000 net acres of Norwegian exploration acreage.

Jim W. Buckee, Talisman president and chief executive officer, said the two companies have overlapping interests in Norway’s Egersund basin in Production License 316, of which Paladin holds 40% interest and is the operator. Talisman holds 30% interest.

In the UK, Paladin operates and has a 58.97% interest in the MonArb area, which includes Montrose oil field, three satellite oil fields, a satellite development, and a number of exploration prospects. In Denmark, Paladin has a nonoperated interest in Siri oil field.

Provident-EnCana NGL

The sale, expected to close by yearend, is part of EnCana’s previously announced divestiture program to focus on nonconventional resource plays in North America (OGJ, July 12, 2004, p. 39). EnCana will use sale proceeds to reduce debt.

The sale includes four NGL plants in Alberta and Kinetic Resources, a NGL marketer. EnCana will sell 60% interest in the EnCana Empress Plant and retain a 10% interest with an option to sell the 10% to Provident for $12.6 million.

Other assets being sold are EnCana’s 33% interest in the BP PLC E1 plant, 100% interest in a debutanizer, 50% interest in the Kerrobert pipeline and storage facility, and 49% interest in the Marysville underground storage terminal.

EnCana also agreed to provide up to $63 million, via a gas sales contract, if the commodity price relationship affecting the NGL business were to drop below historic averages during the next 2 years.

SK Corp. cuts refinery bid

In September, SK agreed to a total investment of 3.2 trillion won, including purchase of 1.6 trillion won worth of new shares issued by Inchon Oil and 1.6 trillion of new bonds from the refiner.

But sources said SK and the Inchon District Court recently reached an agreement that the refiner will instead buy 1.44 trillion won of bonds from Inchon Oil.

Inchon Oil has been under court receivership since March 2003 after going bankrupt in 2001. It operates a 270,000 b/cd hydroskimming refinery east of Seoul.

SK plans to sign a final contract to buy Incheon Oil next year after receiving approval from South Korea’s Fair Trade Commission, the country’s antitrust agency, for the takeover.

With the purchase, SK will become Asia’s fourth-largest refiner, with a refining capacity of 1.1 million b/d.

In January, creditors led by Citigroup Inc. rejected a 685 billion won offer from China National Chemical Import & Export Co., China’s largest chemicals trader, saying it was too low.

In August, a South Korean court instead chose a consortium led by SK as the preferred bidder for the sale of the refinery (OGJ Online, Aug. 19, 2005).

Houston Exploration

Historically, the Gulf of Mexico has accounted for about 40% of Houston Exploration’s the company’s total production. Houston Exploration’s yearend 2004 offshore reserves totaled 291 bcfe, or 37% of the company’s total proved reserves.

The company expects to open a data room to qualified bidders in January. Executives said they will use the sale proceeds in multiple ways, and that might include acquiring additional US assets.

“For several years we have been building our onshore business and are now beginning more significant strategic moves to transform Houston Exploration,” said William G. Hargett, chairman and chief executive officer. “We are taking advantage of the current favorable market conditions for offshore properties in order to monetize the gulf and focus our people and capital on longer-lived opportunities in the Lower 48.”

Aabar trading shares

Trading of Aabar’s shares will be the first public trading of shares in a private company conducting oil and gas operations in the Persian Gulf region.

Aabar, which will focus on exploration and production, offered 55% of its capital in an greatly oversubscribed initial public offering last April and acquired the Abu Dhabi drilling contractor Dalma Energy in July. Since then it has added 7 rigs to the 11 units it acquired with Dalma.

Aabar Chairman Sohail Al Mazrui said the company will seek joint venture opportunities with local and international partners and noted “the expected opening up of the petroleum E&P sector in the gulf.” Aabar also will pursue acquisitions.

Al Mazrui is a former general manager of Abu Dhabi National Oil Co. and secretary general of the Supreme Petroleum Council of the United Arab Emirates.

Other members of the Aabar board include Ahmed Al Sayegh, chief executive officer of Dolphin Energy; Rashed Al Suwaidi, a former director of exploration and production at ADNOC and former chairman of National Drilling Co.; Naser Al Suwaidi, chairman of Abu Dhabi Investment Co.; and Dhafer Al Ahbabi, chief executive officer of Al Ain International Group.

Kerr-McGee’s divestment

The Oklahoma City company said Oct. 31 that it will realize net, after-tax proceeds of $330 million from the sales, which are expected to close by yearend.

The divestiture involves noncore assets in Texas, Oklahoma, Louisiana, Colorado, and Wyoming. Proved reserves associated with the divestitures are 48 million boe, of which 50% are undeveloped. The properties produce 8,000 boe/d.

The sale includes estimated proceeds from an auction of minor properties, a recently closed property trade, and the previously announced agreement with Encore Acquisition Co., Fort Worth.

Encore agreed to buy oil and gas properties in the Permian and Anadarko basins from Kerr-McGee for $104 million (OGJ Online, Oct. 19, 2005).