A series of strategic moves topped company news last week.
Persistence may pay off for Norwegian contracting giant Kværner AS, as it makes repeated offers for rival firm Aker Maritime AS. If the two firms were to join resources, the newly formed company would become one of the biggest products and technology suppliers for operators in the North Sea.
Meanwhile, Tulsa-based energy giant Williams has made two acquisitions of key Canadian NGL and gas processing assets-a move that marks its first significant entry into Canada.
Kværner-Aker saga
Kjell Almskog, president and CEO of Kværner, promised his company would "push on" in its bid to take over Aker Maritime despite its rival's flat-out rejection of last week's 4.5 billion kroner all-share offer-its fourth approach in 15 months-as "far" too low.
The latest overture from Kvaerner comes after three previous sit-downs with Aker failed to reach "agreement on price." Were last week's bid to be ultimately successful, the result would be the creation of an international construction combine with 21,000 employees in 40 countries and revenues of about 60 billion kroner/year.
Kværner is offering Aker shareholders an exchange of a 0.79 share in the new combined group for every Aker share held, a ratio roughly equal to 80 kroner/share and representing a "premium of 39% based on the last 5 days of trading in both companies' shares."
The proposed combine
Kværner suggests the combination of the two contractors-both of which were hard hit by the last commercial slowdown in the North Sea offshore construction market-would produce a good fit, adding "strength particularly in terms of the technology and product portfolio through Kværner's prominent position in subsea products and Aker's recognized deepwater technology."
"Combined with Aker, Kværner will be second to none in the oil and gas products and technology area," suggested Almskog. "This market is changing, and the supplier industry must respond. In a few years from now, we believe there will only be a handful of truly global players dominating this industry. And we intend to be one of them," he said.
Beyond creating "a leading player" on the two groups' home market-the North Sea-Kværner reasons the takeover would also result in a company with "a strong position" in the Gulf of Mexico and improved chances of "win[ning] projects in emerging markets such as the Caspian Sea and the waters off West Africa and Brazil."
In light of the fact that the takeover bid comes less than a month after Aker acquired slightly more than 26% of Kværner at a cost of 2.6 billion kroner, Almskog added that amalgamation would also "assist in neutralizing potential conflicts in the marketplace."
With new deepwater developments certain to generate the majority of work for oil and gas industry contractors worldwide in the coming years, the prime motivation behind the takeover bid, acknowledged a Kværner spokesman, was Aker's established presence in regional deepwater markets, including the US gulf via its popular spar platforms. Last month, Aker was awarded a contract to design and build another spar by Vastar Resources Inc. for that operator's Horn Mountain development in the Gulf of Mexico.
Kværner calculates annual synergies of more than 250 million kroner for the combined group, derived from a joint effort in technology development, procurement economies, reduced tender costs, and overheads. In Norway, market overcapacity caused by the takeover would mean a rationalization of the two companies' six fabrication yards, though Almskog stressed "no decision had been made [as to] which would close."
The offer, which Kværner said would depend on its gaining the approval of shareholders representing more than 90% of shares in Aker and on Aker retaining its present ownership in interests in Kværner, will be sent out to all Aker shareholders within 2-3 weeks.
About 200 million kroner has been set aside for restructuring costs, should Kværner's proposal finally be given the green light.
Canadian midstream assets
Williams agreed to purchase TransCanada PipeLines Ltd.'s interests in the Cochrane, Redwater, Empress II, Empress V, and Younger NGL extraction plants and the West Stoddart gas processing plant. Separately, Williams agreed to buy Dow Chemical Co.'s 32.5% interest in the Cochin pipeline system, a 1,900-mile, 12-in. NGL and ethylene pipeline extending from Fort Saskatchewan, Alta., to the upper Midwest US and on to Windsor, Ont., with an extension to Sarnia, Ont.
The transactions are Williams's first significant entry into Canada and will make the firm a leading NGL producer throughout North America.
While Williams did not disclose the value of the deals, TransCanada revealed that its deal with Williams and with two smaller divestitures last month are worth a combined $1.15 billion (Can.).
"These sales, combined with other previously announced sales and agreements, bring TransCanada 80% of the way to its $3 billion [Can.] target from the divestiture of noncore assets," said Doug Baldwin, TransCanada's president and CEO.
TransCanada acquisition
The TransCanada acquisition will be made by Williams's Canadian unit, Williams Energy Canada Inc. Being acquired are: 100% of the Cochrane, Redwater, Empress II, and West Stoddart facilities; 50% of the Empress V complex; and 43.3% of the Younger plant.
The western Canada asset package comprises about 6 bcfd of gas processing capacity, 225,000 b/d of NGL production capacity, 2,000 miles of NGL pipeline, and more than 5 million bbl of NGL storage capacity. The sale is expected to close in the fourth quarter, pending regulatory and government approvals.
The Cochrane plant, near Cochrane, Alta., can process more than 2.5 bcfd of natural gas and produce up to 65,000 b/d of ethane and 32,000 b/d of propane-plus. The 130 tonnes/day of liquefied food-grade carbon dioxide recovered at Cochrane is trucked to various users, including well service providers and the food and beverage industry.
The Redwater fractionator and NGL storage facility is in central Alberta, about 64 km northeast of Edmonton. It has a liquids capacity of 65,000 b/d and is connected to various gathering systems that collect liquids from gas plants in central and northwestern Alberta and northeastern British Columbia.
The Empress II and V plants, about 100 km northeast of Medicine Hat, Alta., process natural gas before it leaves the province for eastern markets. The Empress II plant can process more than 2.5 bcfd of gas and produce 40,000 b/d of ethane and 25,000 b/d of propane-plus. Empress V is under construction and is expected to be complete this fall, says TransCanada. The plant is designed to process 1.1 bcfd of gas and produce 20,000 b/d of ethane and 11,000 b/d of propane-plus.
The Younger NGL extraction plant at Taylor, BC, has a capacity of 750 MMcfd of natural gas and an NGL production capacity of 32,000 b/d. Ethane-plus produced at Younger is shipped by pipeline to the Redwater facility.
The 120 MMcfd West Stoddart gas plant is about 50 km northwest of Fort St. John, BC. It purifies sour gas by removing hydrogen sulfide and carbon dioxide, recovers a portion of the hydrocarbon liquids content, and injects recovered acid gas into nearby disposal wells. The sweetened gas is shipped by a sales gas pipeline to the Younger plant for additional liquids recovery. The NGL mix extracted from the incoming gas stream at Younger is transported by pipeline to Redwater for further fractionation.
Williams's strategy
Steve Malcolm, president and chief executive officer of Williams's energy services business, said, "This [the TransCanada acquisition] is a key milestone in the life of Williams's midstream business for three reasons. First, it vaults us into Canada for the first time in a prominent way with assets that are located on the doorstep of the Western Canadian Sedimentary Basin, which is a growth basin that has tremendous upside potential. Second, the acquisition reinforces Williams's role as a leading NGL producer in North America. Third, the purchase builds upon our acquisition of Mapco in 1998, when we added around 10,000 miles of NGL pipes to our gathering and processing operations.
"When you couple these points together," added Malcolm, "Williams is positioned to become the first company that has the ability to provide its producer customers with a comprehensive transportation, storage, and distribution network to every major natural gas liquids demand center in North America. This is consistent with our midstream vision and growth strategy."
Malcolm added, "Our midstream business has traditionally been focused in three areas of the United States-the Rocky Mountains, Midcontinent states like Oklahoma and Kansas, and the Gulf Coast. This acquisition expands our scope into a fourth area, western Canada."
Williams's US midstream portfolio includes 12 gas processing plants, 10 gas treating plants, 11,000 miles of gathering lines, 12,000 miles of NGL transportation pipes, an average 135,000 b/d of NGL production, more than 200,000 b/d of fractionation capacity, and nearly 60 million bbl of NGL storage capacity.
Williams's other Canadian transaction-the acquisition by a unit of Williams's energy services business of Dow's stake in the Cochin NGL pipeline in Canada-is expected to close in the third quarter. The sale is a key link in Williams's strategy to develop a comprehensive transportation, storage, and distribution network to every major NGL market in North America, says Steve Springer, Williams vice-president and general manager of midstream operations.
"Williams has made a firm commitment to being involved in Western Canada because of the growth projections for gas and liquids production," said Springer. "...Cochin represents a natural bridge between the TransCanada assets and our existing midstream assets in the United States."
Theo Walthie, Dow's business group president for hydrocarbons, energy, and ethylene oxide-ethylene glycol, said, "Dow's ownership interest in the pipeline is no longer a long-term fit with our global strategy for hydrocarbons feedstocks. This is an opportunity to reduce our infrastructure while still maintaining a shipping presence on the pipeline, because Cochin is a fully regulated, common carrier system.
"The pipeline will remain important to Dow as a means of delivering ethylene from our operations in Fort Saskatchewan, Alta., to our operations in Sarnia, Ont."
Why Canadian NGL?
Dan Lippe of Petral Worldwide Inc., a Houston-based consulting firm, believes the move is a smart one for Williams, for the reasons stated by Malcolm plus some others.
"Williams's acquisition of TransCanada's midstream assets substantially expands its presence in western Canada and expands upon its long-standing relationships with the western Canadian NGL industry," Lippe said.
The TransCanada midstream assets include a major "straddle" gas plant in the Empress area of southeastern Alberta (Cochrane) and a major raw mix fractionator in northwestern Alberta (Redwater), Lippe pointed out.
"There is a lot of potential for growth in gas production in western Canada, and especially in the foothills area of Alberta," he said. "Growth in gas production in western Canada should keep straddle gas plants in Alberta running full.
"Additionally, the Cochrane gas plant is the largest producer of ethane in Alberta, and TransCanada's midstream group controls even larger volumes of ethane via acquisition. [This means] Williams automatically becomes a major player in Canada.
"With the completion of Nova's 3 billion lb/year ethylene plant at Joffre, [Alta.], ethane supplies in Alberta become tight. Gas processors in Alberta will be well-positioned to write favorable ethane supply contracts...within the next 5 years," said Lippe. "The justification for Williams's acquisition of TransCanada probably also includes expectations that there will be opportunities to profitably fill the increasing demand for ethane in western Canada."
Another reason Williams may have targeted these assets for acquisition, says Lippe, is the existence of "historical interrelationships between the Mapco NGL pipeline assets in the Midcontinent [US] and NGL supplies and pipelines in western Canada.
"There is a key pipeline interconnect between Cochin and Mapco at Iowa City," he said. "Williams has an important NGL storage facility at Iowa City and has historically used it to convert high-purity ethane from western Canada to E-P (ethane-propane) mix that is suitable for shipment through the Mapco/Williams Midcontinent pipelines."
