ConocoPhillips plans to acquire Burlington Resources Inc. for $35.6 billion in a transaction that would boost Conoco Phillips’s rank as a US gas producer.
The deal remains subject to approval of Burlington stockholders and US regulators. Terms call for Burlington stockholders to receive $46.50 in cash and 0.7214 share of stock for each Burlington share they own.
Closing is expected in the second quarter of 2006. Upon completion of the transaction, ConocoPhillips stockholders will own 83% of the resulting company, and Burlington shareholders will own 17%.
In other recent company news, some oil and gas companies have released their capital spending plans for 2006. These companies’ plans include:
• Chevron Corp. plans a 35% increase in capital and exploratory spending next year to a worldwide total of $14.8 billion.
• ConocoPhillips approved 2006 cash capital expenditures of $10 billion-45% more than it budgeted for 2005-with $6.3 billion allocated to exploration and production.
• Nexen Inc. plans a record $2.9 billion (Can.) in capital projects in 2006 with 45% of it allocated for major development projects. The 2006 plan is $100 million more than the 2005 budget.
• Plains Exploration & Production Co., Houston, has allocated $430 million for capital projects next year and approved a $500 million stock repurchase program funded with cash flow in excess of capital investments.
• Edge Petroleum Corp. approved an initial 2006 capital expenditure program of $110 million, a 15% increase over 2005, excluding acquisitions.
ConocoPhillips-Burlington
ConocoPhillips Chairman and Chief Executive Officer Jim Mulva said, “ConocoPhillips will expand our portfolio of high quality, low-risk, long-lived gas reserves and become a leading producer of natural gas in North America.”
Mulva told reporters during a Dec. 13 conference call that negotiations took several months. ConocoPhillips “had thought about [this acquisition] for a number of years.”
Burlington Chairman, Pres., and Chief Executive Officer Bobby S. Shackouls said, “The overlap throughout North American is tremendous. As we looked around the field of possible combinations, this one made tremendous sense to us.”
Mulva and Shackouls said they doubt that either company will have to make divestitures to get approval for the transaction from the US Federal Trade Commission. Burlington also is filing a request for a review by the US Securities and Exchange Commission.
In the latest OGJ200 based on annual reports for 2004, ConocoPhillips ranked third among US producers in assets. Burlington was 10th (OGJ, Sept. 19, 2005, p. 24).
Upon completion of the transaction, ConocoPhillips will have pro-forma reserves of 10.5 billion boe as of Dec. 31, 2004, excluding 300 million boe associated with ConocoPhillips’s Syncrude operations. Of that, 52% is in the US and Canada.
Pro-forma 2005 production will be 2.3 million boe/d, including OAO Lukoil and Syncrude. Half of that production is in the US and Canada.
Based on Dec. 9 closing market prices and debt levels as of Sept. 30, the combined ConocoPhillips and Burlington would have an enterprise value of $135 billion, of which $29 billion is net debt and preferred securities. Enterprise value is market capitalization plus debt and preferred shares less cash and cash equivalents.
ConocoPhillips expects to achieve pre-tax cost savings of $375 million/year after the operations of the two companies are fully integrated. The savings will come from reduced corporate expenses and operating expenses.
Shackouls and Steven J. Shapiro, Burlington executive vice-president of finance and corporate development, plan to retire after the acquisition is completed. Shackouls will join the ConocoPhillips board.
Banc of America Securities analyst Daniel Barcelo said, “ConocoPhillips achieves scale in a broadly financially accretive transaction.”
The transaction value is $92/share, based on the $63.07 closing price of ConocoPhillips shares on Dec. 9, the last unaffected day of trading before the transaction announcement.
Chevron 2006 spending
Including its share of spending with affiliated companies, Chevron plans outlays totaling $11.3 billion for upstream projects ($3.3 billion in the US); $2.8 billion for refining, marketing, and transportation ($1 billion in the US); and $700 million for chemicals and other activities.
Chevron noted that of the planned $3.8 billion increase over 2005 spending, $3 billion is for upstream projects. It said the upstream tilt reflects several major projects that have entered the construction phase, full-year spending on projects it gained with the Unocal Corp. acquisition last August, and increased costs for materials and services.
ConocoPhillips 2006 outlays
Of ConocoPhillips’s $6.9 billion in capital expenditures budgeted for 2005, $5.1 billion was for E&P. The company didn’t report actual capital spending for 2005.
ConocoPhillips executives said the 2006 capital budget for refining and marketing is $3.5 billion, compared with a 2005 R&M capital budget of $1.6 billion.
ConocoPhillips plans next year to close on its purchase of a 275,000 b/d refinery in Wilhelmshaven, Germany, from Louis Dreyfus Energy Holdings Ltd. and the UK’s Louis Dreyfus Refining and Marketing Ltd. (OGJ Online, Nov. 28, 2005).
As in 2005, the company budgeted $200 million in 2006 for emerging businesses and corporate expenses.
Of the 2006 E&P budget, about $1.8 billion will fund projects in the North Sea and West Africa. In the Asia Pacific region, ConocoPhillips plans to spend $1 billion.
It also plans to spend a combined $900 million on developments in the US Lower 48 and Latin America. The company allocated $800 million each to Alaska and Canada.
Nexen’s capital spending
Nexen plans to spend $650 million next year at its Long Lake steam-assisted gravity drainage heavy oil project in Alberta.
At Buzzard oil field in the UK North Sea, Nexen anticipates spending $450 million to drill and complete eight production and six injection wells and to complete and tie in all facilities. Buzzard is on schedule to commence production in late 2006 (OGJ Online, Apr. 27, 2005).
Nexen plans to invest $50 million to complete and commission its share of the Syncrude Stage 3 oil sands mining expansion, which is to come on stream in mid-2006. The Fort McMurray, Alta., project involves a consortium of companies operated by Syncrude Canada Ltd.
Plains E&P’s spending
Plains E&P earmarked 55-60% of the 2006 capital budget for development and production of existing proved reserves, 20% for exploitation projects, and the rest for exploration, mainly in the deepwater Gulf of Mexico Lower Miocene trend.
The company plans to drill about 300 wells in California next year, 65-75% in the San Joaquin Valley and 25-35% in the Los Angeles basin.
The San Joaquin drilling includes development of existing tertiary recovery steamfloods and expansion and initial development of new primary recovery and steamflood projects. Los Angeles basin drilling will be concentrated in Inglewood oil field with a mix of shallow waterflood development wells and the expansion of deeper waterflood and primary recovery zones.
Plans for offshore California drilling include four wells in Point Pedernales oil field and an additional extended-reach well currently in progress in Rocky Point oil field.
In Louisiana, Plains E&P plans four to six Breton Sound exploitation wells, including some delayed by the 2005 hurricanes. Additional low-risk development wells will be drilled in Pakenham gas field in West Texas as well as some higher risk targeted prospects elsewhere in the state.
In the deepwater Gulf of Mexico, Plains E&P expects four to eight wells to be drilled during 2006.
Edge Petroleum’s outlays
Edge, based in Houston, allocated $78 million for drilling 60-65 wells along with other well activity, including recompletions and workovers. Edge plans to spend $22 million on land and seismic activity. It did not specify how the other $10 million would be spent.
Edge has a contingent capital expenditure program that envisions drilling 35-40 more wells. Those wells and related activities could require an additional capital expenditure of $35-40 million.✦