The consolidation of the top US independents into a handful of superindependents continues.
Devon Energy Corp., Oklahoma City, has agreed to acquire Santa Fe Snyder Corp., Houston, for about $3.35 billion in stock and assumed debt, in a deal creating one of the top five US independent oil and gas companies. The company will continue to be named Devon Energy Corp. and will remain headquartered in Oklahoma City.
Meanwhile, the merger and acquisition frenzy in Canada shows no sign of letting up, with developments noted on bids or battles targeting Ranger Oil Ltd., Calahoo Petroleum Ltd., Draig Energy Ltd., and Ulster Petroleums Ltd.-and a preemptive move by Maxx Petroleum Ltd.
There is fresh news to update two of the world's biggest megamergers, involving BP Amoco PLC-ARCO and TotalFina SA and Elf Aquitaine SA, and a possible new one brewing among state-owned majors in Russia.
In the UK, London-based Aquila Energy Ltd., a services subsidiary of UtiliCorp Ltd., has acquired The Gas Co. The Gas Co. is the trading name of Saracen Gas Ltd., also based in the UK. Aquila Energy said the acquisition is part of its growth strategy and will support its planned entry into the UK electricity market this fall. Aquila Energy and The Gas Co. will serve their existing customers with no change in existing business arrangements.
Devon acquisition
Under their merger agreement, Santa Fe Snyder shareholders will receive 0.22 share of Devon common stock for each Santa Fe Snyder common share. As a result, Devon shareholders will own about 68% of the combined company and Santa Fe Snyder shareholders about 32%. The deal includes assumption of about $1 billion in debt and liabilities.
The combined company, with total proved reserves of about 1.1 billion boe, will be "stronger and better positioned to compete together than either would be independently" said Larry Nichols, Devon chief executive. "Both our companies have been active with the drill bit, and both have been active acquirers-consolidators. Our larger platform should enhance both strategies."
Santa Fe Snyder was formed last year when Santa Fe Energy Resources Inc. bought Snyder Oil Corp. for $853 million. Devon bought PennzEnergy Co. for $2.61 billion in August, after buying Canada's Northstar Energy Corp. for $787 million in 1998.
Nichols, Devon's current chief executive, will serve as president and chief executive of the combined company. James L. Payne, Santa Fe Snyder's current chief executive, will serve as vice-chairman. and James L. Pate, Devon's current chairman, will serve as board chairman.
The companies said they expect to realize cost savings of $30-35 million/year but did not specify if savings would be through job cuts. The companies have substantial property overlap in core operating regions, including the Permian basin, the Rocky Mountains, and the Gulf of Mexico.
About 76% of the company's reserves would be located in North America and are weighted 58% to natural gas. The company also would have substantial international reserves, including positions in Azerbaijan, Southeast Asia, and South America.
Devon said the Santa Fe Synder purchase will add to its earnings per share.
Both boards have approved the merger. The companies expect to close the transaction in the third quarter, contingent on shareholder and regulatory approval. The accounting method for the merger is expected to be a "pooling of interests" but is not a condition of the transaction. Devon expects to remain on the full-cost method of accounting. Morgan Stanley Dean Witter acted as financial advisor to Devon, and Chase Securities acted as financial advisor to Santa Fe Snyder.
On a pro forma basis, the companies produced about 30 million boe in the first quarter of 2000. For the full year, on a pro forma basis, the company expects to produce 115-125 million boe. Earlier, Devon outlined an ambitious drilling and exploration program for the year, hiking its budget to $510 million, up significantly from what it and PennzEnergy both were spending prior to their merger in 1999.
Deal praised
Analysts took a generally positive view of Devon's bid for Santa Fe Snyder.
Moody's Investor's Service confirmed Devon's ratings (senior unsecured Baa2) and placed the ratings of Santa Fe Snyder Corp. (senior unsecured Ba1) on review for possible upgrade following the purchase announcement.
Moody's said the ratings confirmation takes into consideration management's commitment to maintaining a conservative balance sheet. Although Devon has historically kept financial leverage at conservative levels, immediately following the close of the merger, leverage will be above those levels, Moody's said.
However, the combined entity is expected to generate substantial free cash flow, and Moody's expects those funds will be used to bring debt levels down within a range more compatible with the assigned Baa2 rating. The ratings confirmation also reflects the potential operational synergies and cost savings expected to result from the increased presence the merged company will have in the Permian basin, Rocky Mountains, and Gulf of Mexico.
Meanwhile, Irene Haas, a financial analyst with Sanders Morris Harris Inc., Houston, called Devon's timing "superb" and raised the earnings target for the combined company in 2000 to $3.04/share, up from $2.89/share for Devon on a stand-alone basis.
"This is another classic 'bottom-fishing' acquisition for Devon," she said in notes on the buyout. Santa Fe Synder's stock price was lagging compared twith other exploration and production companies. She said the merged company will create a first-class North American producer and, with a market capitalization of roughly $7.3 billion and a debt-to-book capitalization of 38%, the "all-in" cost structure after the merger should be a lean "less than $13/bbl."
Ranger
Ranger, Calgary, says it expects to announce soon successful bids for all or part of its assets. The company is fighting an unsolicited takeover bid by a smaller company, Petrobank Energy & Resources Ltd. (OGJ Online, May 16, 2000).
Ranger, which has extensive holdings in Canada, the UK North Sea, and Angola, says there are several serious bidders among the more than 20 companies that have visited its data rooms in Calgary and the UK. Ranger is issuing bid instructions to all interested parties.
CEO Fred Dyment said he expects the company to do "substantially" better than the $1.6 billion (Can.) offer now in play by Petrobank.
Bids are being solicited for the entire company or its businesses in separate parcels. Ranger expects to complete negotiations with potential buyers by mid to late June.
Ranger put itself on the market Apr. 5 in response to shareholder concern over share values. Petrobank made an offer Apr. 6.
Ranger produced an average 71,000 boe/d in 1999.
Meanwhile, Petrobank says says it is in talks to presell up to one third of Ranger's assets. Petrobank CEO John Wright said the talks involve people and groups who think the takeover may succeed. The sales would be finalized if and when Petrobank completes the acquisition.
Petrobank also intends to refinance Ranger's debt.
Samson-Calahoo
Samson Canada Ltd., a subsidiary of Tulsa-based Samson Investment Co., said that 95.4% of the common shares of Calgary's Calahoo Petroleum Ltd. and 88.3% of the preferred shares have been tendered as a result of Samson's offer to acquire the firm. The deal was first announced in April, contingent on Samson acquiring at least two thirds of Calahoo's shares.
Samson is paying $2.90 (Can.) cash for each common share and $1.05 (Can.) for each preferred share. Samson intends to acquire all of the Calahoo common and preferred shares that have not tendered in the offer, which has been extended to 7 p.m. Calgary time on June 6.
Upon completion of the acquisition, Samson's Canadian production will total around 75 MMcfd of natural gas and 4,000 b/d of liquids, with core areas including Rainbow, Ferrybank, Rimbey, and Innisfail. The deal will significantly increase Samson's interests in the Rainbow area and achieve Samson's strategic objective of establishing a new core area in northeastern British Columbia.
Samson says it will continue pressing growth of its Canadian activities through more acquisitions and an expanded drilling program.
Samson Investment is a privately held oil and gas company with operations in the US, Canada, Russia, and Venezuela.
NAL-Draig
NAL Oil & Gas Trust, Calgary, will make a $51.8 million (Can.) offer for all outstanding shares of Calgary junior Draig Energy Ltd.
The offer includes assumption of $26.5 million in debt, net of working capital. The bid will be 0.2375 of an NAL Trust unit for each Draig share.
The boards of both companies have approved the offer, and Draig officers and directors have agreed to tender about 50% of Draig shares.
Hunt-Anderson-Ulster
Hunt Oil Co., Dallas, has dropped its hostile bid for Ulster Petroleums Ltd., Calgary, after Anderson Exploration Ltd., Calgary, made a higher offer for Ulster.
Anderson bid $970.4 million (Can.) for Ulster, and the Hunt offer was about 20% less. Ulster produced 143 MMcfd of natural gas in the first quarter and 5,840 b/d of crude oil.
Hunt said it will either tender its 9.9% interest in Ulster to Anderson or sell its shares on the open market.
Maxx
Maxx Petroleum Ltd., Calgary, says it is looking at a number of options to increase shareholder value, including possible sale of the company.
The company has formed a special committee of its board to examine options. Maxx has production of 8,550 boe/d, 80% of which is oil, with substantial heavy crude production in the Lloydminster region on the Alberta-Saskatchewan border.
It also produces light crude in Saskatchewan and is involved in deep gas exploration in Alberta.
The company has a market value of about $83 million (Can.) and net debt of $62 million. Maxx expects to increase production to 10,000 boe/d by yearend.
BP Amoco-Vastar
BP Amoco has won approval from Houston-based Vastar Resources Inc.'s board of directors to acquire the 18.1% of Vastar it doesn't already own.
BP Amoco proposes to buy the 17.7 million shares of Vastar stock for $1.47 billion, or $83/share.
BP Amoco acquired 81.9% of Vastar's shares through its recently completed acquisition of ARCO. It had offered to acquire the remaining 18.1% holding in Vastar while the ARCO acquisition was pending.
BP Amoco raised its offer from the initial $71/share, made Mar. 16. The new, significantly higher figure resulted from negotiations between BP Amoco and a special committee set up by Vastar.
Closing is contingent on approval by the holders of at least two-thirds of the Vastar shares not held by BP Amoco, at a meeting to be scheduled for this summer.
W. Mark Meyer, an energy analyst with Houston-based boutique investment company Simmons & Co. International, says he and other financial analysts aren't surprised that BP Amoco raised its offer or that BP Amoco would try to bring Vastar completely into its fold. The higher offer is a more fairly priced one, according to Simmons's unofficial evaluations of Vastar, Meyer says.
Vastar's latest deepwater successes, its 15.8% return rate on capital in 1998, and assets in deepwater Gulf of Mexico all make the company an attractive acquisition, analysts said. It also complements the onshore Midcontinent properties and other assets owned by the former Amoco Corp., which was acquired by British Petroleum PLC in late 1998.
The synergies of BP Amoco's and Vastar's properties, Meyer says, should create a company with a "great cash flow engine," particularly in the deepwater Gulf, where BP Amoco is already a top producer. BP Amoco's cash flow needs are expected to rise as it begins developing capital-intensive properties such as the Crazy Horse prospect in the deepwater Gulf of Mexico. Located in 6,000 ft of water in the Boarshead basin about 125 miles southeast of New Orleans, BP Amoco says Crazy Horse could hold up to 1 billion boe of recoverable reserves.
Adding Vastar's personnel to its employee roster could also give BP Amoco an edge, Meyer says, if those employees can successfully meld with BP Amoco's large corporate structure after working in the entrepreneurial environment of an independent exploration and production company. "They're a good group," Meyer says. "The question is, will they be motivated in the BP organization?"
Vastar was among the few companies who were capable of posting $3/share earnings a couple of months ago, Meyer says. Vastar's recognition that shareholders now gauge a stock's value by its rate of return, rather than by the company's cash flow, and its "sophisticated programs" to ensure a strong rate of return the past several years have helped Vastar's stock to triple in value since its initial public offering (OGJ Online, Apr. 30, 2000).
TotalFinaElf
TotalFinaElf SA will launch an exchange offer in France and North America for the 4.44% of Elf Aquitaine shares it doesn't own.
The proposed exchange parity is 4 TotalFinaElf shares for 3 Elf Aquitaine shares, representing a premium of 11% based on the May 23 closing price in Paris. The offer implies a value of 219.6 euros for each Elf Aquitaine share.
Elf Aquitaine will ask the respective market authorities to delist the shares from the Paris cash settlement market and to delist the American Depository Shares from the New York Stock Exchange.
TotalFinaElf does not intend to initiate a procedure for a mandatory tender following the closing of the offer.
Russian bid
Russia's Tyumen Oil Co. (TNK) said it will bid for Slavneft if Russia proceeds with privatization of the latter.
A merger would propel TNK into the top three Russian oil firms, in terms of production, behind Lukoil and Yukos. Company officials told the Moscow press that Slavneft would be an excellent strategic fit for TNK, which is focused on maximizing shareholder value and has already made several acquisitions.
Adding Slavneft would help TNK achieve economies of scale and would ensure a balance between upstream and downstream operations. Such a balance is crucial for stabilizing cash flow and maximizing margins in Russia. A merger would take advantage of the geographic proximity of their operations in the Moscow region and in Western Siberia, facilitating access to hard-currency exports and domestic consumers.
TNK and its affiliates own 12.6% of Slavneft, 26.8% of its upstream subsidiary Megionneftegaz, and 33.1% of Yaroslavlnefteorgsintez, Slavneft's major refinery and petrochemical plant northeast of Moscow. Slavneft is owned primarily by Russia and Belarus.
Meanwhile, Mikhail Kasyanov, Russia's acting prime minister, said at a recent cabinet meeting that he wants to settle the question of whether to establish a state-controlled oil holding company by early this month. If the government decides not to set up the holding company by merging its stakes in Onako, Rosneft, and Slavneft, it should move ahead with plans for privatization of these companies, Kasyanov said. Officials in Moscow have said they want to sell 25% plus one share in Rosneft, 19.68% of Slavneft, and 80% of Onako this year.