The merger frenzy among oil and gas companies continues apace-with recent weeks' announcements not bucking the trend.
Amerada Hess Corp., headquartered in New York City, reached an agreement early last week with London-based Lasmo PLC to acquire the firm in a cash and stock deal valued at about $3.5 billion, Amerada Hess said.
Stone Energy Corp., Lafayette, La., and Basin Exploration Inc., Denver, unveiled plans Oct. 30 for the companies to merge operations in a stock-for-stock transaction valued at $410 million.
EuroGas Inc., London, and US-based Teton Petroleum Co. have agreed to extend their merger discussions through Dec. 31, beyond the Nov. 1 deadline previously established in an August standstill agreement.
In a deal announced earlier this month, Russia's largest oil company, OAO Lukoil, said it will acquire Getty Petroleum Marketing Inc.-one of the largest independent US marketers of gasoline and petroleum products-in a deal valued at $71 million.
Hess-Lasmo deal details
Amerada Hess's offer for Lasmo would strengthen the former's foothold as one of the world's largest independent exploration and production companies, Amerada Hess said.
Amerada Hess will issue 17.1 million shares of common stock and pay $2.4 billion in cash for the London firm. The transaction also includes the assumption of $1.6 billion of Lasmo's debt.
The merger will increase Amerada Hess's production to an expected 582,000 boe/d in 2001, up from 374,000 boe/d in 2000. Amerada Hess said it will gain reserves at a cost of $5.49/boe.
John Hess, chairman of Amerada Hess, said the acquisition of Lasmo will strengthen his company's international reserve portfolio and extend its production profile. "It enhances our competitive position in a consolidating industry while being accretive to our estimates of our earnings and cash flow per share for 2001," Hess said.
The acquisition of Lasmo-perceived as a "pure" E&P company-also will create a more balanced investment portfolio due to the complementary nature of the companies' assets, cash flows, and investment opportunities, a company statement said. Amerada Hess anticipates significant synergies, given the significant geographical overlap of the firms' assets.
By yearend 2001, it is expected that E&P will represent 76% of average capital employed by Amerada Hess on a pro forma basis, vs. 59% for Amerada Hess for yearend 2000 on a stand-alone basis.
The deal also would help Amerada Hess achieve its goal of increasing reserves outside the US and the North Sea, the company said. International proved and probable reserves will be 41% on a pro forma basis, compared to 16% at yearend 1999.
The purchase will also enhance Amerada Hess's production growth to 6% post-acquisition on a compound annual basis through 2004 from 5% pre-acquisition, while significantly extending its reserve life 14-16 years, including proved and probable reserves, the company said.
Lasmo's directors unanimously recommended the sale. The deal must now be accepted by at least 90% of Lasmo's stockholders.
The offer represents a 28% premium over the midmarket closing price of a Lasmo share at the close of business on Nov. 3, the last trading day on the London Stock Exchange prior to the deal's announcement.
Lasmo also agreed to pay Amerada Hess £24 million if the offer lapses or is withdrawn.
Stone-Basin deal
Stone's proposed merger with Basin Exploration will create a company with a market capitalization valued at $1.5 billion, including $1 billion in equity and $100 million in net debt.
The boards of directors for both companies approved the agreement, through which Basin stockholders will receive 0.3974 share of Stone for each Basin share. Based upon Stone's closing price of $54.16 on Oct. 27, this represents $21.52 for each Basin share, a premium of 10%. Stone also will assume $48 million of Basin's debt. Stone's stockholders will own 71% of the combined company, and Basin's stockholders will own 29%.
Stone said the merger would widen its critical mass and scope, allowing Stone to aggressively compete for and secure future growth opportunities in the Gulf of Mexico. It also will expand Stone's existing portfolio with a number of geologically promising, multiple-well targets across the Gulf of Mexico, according to the company.
The merger also will increase Stone's proven reserves by 54%, to 596.9 bcfe from 387.4 bcfe as of yearend 1999. It will raise Stone's current production 50%, to 300 MMcfed from 200, expand its drilling prospect inventory 50%, and raise prospective undeveloped acreage to 267,000 acres from 74,000, said Stone.
Stone will add 22 producing properties and 47 unexplored primary-term lease blocks in the Gulf of Mexico. The deal also allows Stone to leverage its existing technical and operational expertise and infrastructure across combined operations in the Gulf of Mexico and to use Basin's extensive inventory of 3D seismic databases across the Gulf of Mexico.
The companies expect the transaction to be completed early in 2001. The combined company, to be called Stone Energy Corp., will be headquartered in Lafayette, said D. Peter Canty, Stone Energy president. Stone will retain Basin's employees after the merger is completed.
"Their expertise will enhance our already solid platform for continued profitable growth," Canty added. "We believe the combination of our respective strengths will create the premier Gulf of Mexico-focused E&P company."
Canty will become chief executive officer of Stone effective January 2001 and continue in that role in the combined company. Michael Smith, the chief executive officer of Basin, will join Stone's board of directors once the merger is completed.
EuroGas-Teton talks
EuroGas and Teton began merger discussions 15 months ago and last April announced a merger agreement. However, rising oil prices throughout the negotiation period required the two companies to rework the original deal's terms and structure several times.
"It is important that we let the shareholders know that these talks are still progressing, and that there is value in continuing the negotiations," said Karl Arleth, president and CEO of EuroGas. "However, we cannot and will not discuss specifics until a potential final agreement is reached."
Teton is part-owner of the Goloil license in western Siberia, 20 miles north of supergiant Samotlor field. Production from the Goloil license currently averages 1,250 b/d of oil from two wells. Two additional wells are shut-in and will be put on production once the pipeline is completed. Field production is expected to increase substantially once the 25-mile pipeline is completed by yearend 2000. The Goloil license reserves are estimated at 104 million bbl of oil.
Teton has continued to fund the Goloil license during the standstill period. The pipeline is now 50% complete, one additional well has been drilled, and Teton is drilling a fifth development well.
Lukoil-Getty transaction
Lukoil's purchase of Getty is the first acquisition of a publicly held US company by a Russian corporation, according to Ralif Safin, Lukoil first vice-president. "It is the first step in our expected expansion into the US market," he said in a written announcement.
"It is an excellent opportunity for Lukoil because it gives us entree into the vast American market in partnership with a highly regarded brand. In the future, we may seek to supply the Getty stations with our own petroleum products," he said.
The deal will give Lukoil "a step-up on the learning curve" in its push to expand outside of its native Russia, said George Gaspar, energy analyst at Robert W. Baird & Co.
However, Gaspar said, "The US oil industry is asleep to allow this to happen. It is another example of losing a marketing opportunity that someone here should have grabbed onto."
He said, "The US oil industry has been losing capacity for years. As it has come out of each of the four [business] cycles since 1980, the industry has lost a little more of its ability to perform."
This is Lukoil's second run at the downstream US market. An earlier attempt to establish retail gasoline outlets at supermarket locations failed to materialize, other company officials said.
Lukoil currently is negotiating with US and European companies to supply refined products for its US operations. In time, the Russian firm hopes to acquire US refining capacity through one or more acquisitions or joint ventures with US refiners.
Getty serves retail customers through some 1,300 gasoline stations located in 13 Northeastern and Mid-Atlantic states. It also markets heating oil in the New York Mid-Hudson Valley and is a wholesale distributor of a variety of petroleum products through its East Coast petroleum storage and distribution network.
Lukoil deal details
Under the definitive merger agreement signed by the two companies, Lukoil will pay $5/share for Getty's common stock-a 54% premium over its Nov. 1 closing price of $3.25/share, officials said. Several principal shareholders, who collectively own about 40% of Getty's common stock, have already agreed to tender their shares, subject to certain conditions.
The all-cash transaction is structured as a first step tender offer followed by a cash merger to acquire all remaining shares of Getty common stock, depending on a majority of the outstanding stock being tendered, officials said.
As part of that deal, the Getty Petroleum Marketing unit will sign an adjusted initial 15-year lease agreement with Getty Realty Corp. for a substantial number of the branded gasoline stations, with renewal options through 2049.
Lukoil officials said no layoffs of Getty employees are expected and that most, if not all, of the company's current management would be retained. Getty's headquarters will remain in Jericho, NY.
"The combination of Getty's strong presence in the American market with Lukoil's capabilities as a world class integrated oil company is going to create a formidable new company," said Leo Liebowitz, Getty Petroleum chairman and CEO.
"We anticipate a smooth transition and expect that Lukoil will immediately benefit from the outstanding infrastructure, knowledge, and experience that Getty Petroleum Marketing brings to this outstanding, world-class organization," he said.
Lukoil is Russia's largest vertically integrated oil company, active in oil and gas exploration and production, refining, sales, and transportation. It has operations in 40 regions in Russia and in 25 other countries. It employs more than 120,000 people.
Lukoil's combined reserves were recently calculated by Miller & Lents Inc., a US engineering firm, at 23 billion bbl of oil and 6.6 tcf of gas (OGJ Online, Sept. 5, 2000). More than 60% of those reserves are concentrated in Western Siberia, with another 30% in the European part of Russia and 10% outside that country.
Last year, Lukoil's subsidiaries and dependent companies produced 75.6 million tons of crude, about 24% of Russia's total oil production, said company officials. It also accounted for 12% of Russia's total oil refining in 1999 and exported a total of 30.5 million tons of crude in 1999.
The company has more than 1,000 retail gasoline stations and a market capitalization in excess of $10.5 billion, officials said.
