Company News: Several majors in takeover battles for big independents

A pair of takeover battles among major oil companies tops the latest flurry of merger and acqusition action.

The focus of much of the latest M&A action is on large, integrated firms attempting to swallow independents with sizable E&P portfolios.

Italian oil giant ENI SPA last month agreed to pay in excess of £3.8 billion in cash for UK independent Lasmo PLC, besting an earlier bid by New York-based Amerada Hess Corp. by £300 million.

Woodside Petroleum Ltd.'s independent directors detailed reasons for their rejection of the sweetened $2.5 billion offer by Royal Dutch/Shell Group for a 56% controlling interest in the Australian firm.

Meanwhile, Algerian state-owned oil company Sonatrach confirmed that BHP plans to sell a slice of its stake in three hydrocarbon projects in the North African country to Woodside, according to a report from the Organization of Petroleum Exporting Countries' news agency, OPECNA.

In other M&A action:

• Berkley Petroleum Corp., Calgary, says it will fight an unsolicited $1.4 billion (Can.) takeover bid by a unit of Hunt Oil Co., Dallas.
• Marathon Oil Co. plans to buy Denver-based Pennaco Energy Inc. for $19/share in a $500 million transaction.
• Tom Brown Inc., Denver, agreed to acquire Canada-based Stellarton Energy Corp. in a stock transaction valued at $94.8 million, including estimated net debt of $14.5 million.

Elsewhere, some privatized and soon-to-be-privatized state oil and gas companies have been reassessing their portfolios, trimming away certain assets and homing in on others in an effort to maintain a worldwide competitive edge.

Norway's Statoil AS was lined up for partial privatization this year, as the country's Labor government last month announced long-delayed plans to restructure ownership of both the energy giant and the package of reserves on the Norwegian Continental Shelf (NCS) owned directly by the state, known as the State Direct Financial Interest (SDFI).

And Russian company Tyumen Oil Co. (TNK) said it plans to absorb its four oil production subsidiaries to make the company more attractive to international capital markets prior to an international bond offering in mid-2001.

ENI-Hess-Lasmo

ENI wants to boost its global oil and gas output and strengthen its North African and North Sea portfolios with the Lasmo acquisition.

ENI is offering 200 pence cash for each Lasmo share-equal to a total £2.69 billion, a 12% premium on Hess's early November cash and share offer (OGJ, Nov. 13, 2000, p. 28). The Italian company will also pick up £1.12 billion of Lasmo's debt.

Vittorio Mincato, chief executive of ENI, said, "With the acquisition of Lasmo, we will achieve our announced production target of at least 1.5 million b/d and further strengthen our position in two of ENI's core areas: North Africa and the North Sea. We will also establish a foothold in the Asian gas market and an operating presence in Venezuela."

Lasmo Chairman Antony Hichens commented, "Today's all-cash offer from ENI unlocks even greater value for Lasmo shareholders than the Amerada Hess offer. Talks on asset disposals held earlier in the year, which led to the offers for the company, highlight the value of Lasmo's asset portfolio and its attraction to a growth-oriented industry buyer such as ENI."

In March 2000, ENI bought another UK independent, British-Borneo PLC, for £788 million, boosting its own proven and probable reserves by more than 260 million boe, and adding about 60,000 boe/d to its production.

Amerada Hess issued a statement following ENI's announcement: "Amerada Hess Corp. notes the announcement by ENI of its intention to make a cash offer for all the issued ordinary shares of Lasmo PLC at a price of 200 pence per ordinary share. While Amerada Hess reserves all rights to revise the terms of its offer in the event of changed circumstances, Amerada Hess does not intend to revise the terms of its cash and stock offer for Lasmo."

Shell-Woodside

In a detailed explanation promised previously, Woodside's independent directors reiterated late last month that Shell's sweetened $2.5 billion offer for a 56% controlling interest in the Australian firm is inadequate.

In late November, the directors rejected Shell's cash offer of $14.80/share (Aus.), plus a call option for one share of Woodside stock, exercisable at the same price if shareholders approved Shell's separate merger proposal. At that time, they promised to provide their shareholders "with detailed recommendations shortly." (OGJ Online, Nov. 28, 2000)

The Woodside independent directors subsequently hired an outside expert, Deloitte Corporate Finance Pty. Ltd., which used three different valuation methods to assess Shell's offer.

Based on that evaluation, Shell's offer "is neither fair nor reasonable;" does not provide "an adequate premium;" and does not "fully reflect the growth initiatives of Woodside," they said in a written statement.

"The independent expert has assessed the fair market value of Woodside to be $16-18/share," said John Akehurst, the company's managing director.

"This range compares with Shell's offer of $14.80/share and a conditional call option that the independent expert has valued at 20-42¢. The independent expert has concluded that the offer is neither fair nor reasonable," he said.

Akehurst also cited three unspecified recent takeovers in Australia's resource sector, in which the average premiums were reportedly 53-101%, "measured 1 day and 2 months, respectively, before the bids." He said, "Shell's takeover premium for Woodside, when measured against the same criteria, ranges from just 4% to only 10%."

Moreover, Deloitte officials estimated the average premium for takeover bids among global oil and gas companies to be 48% above the share price a month before the bid. The average premium offered in cash bids greater than $2 billion (US) for large companies was 43%, officials said.

In cases where the bidding company already owned more than 20% of the takeover target, officials figured the average premium at 19% over the share price a month before the bid and 26% above the share price 2 months before. Shell now has 34.3% interest in Woodside.

"The premium being offered to shareholders by Shell falls well short of these benchmarks," said Akehurst.

When Shell sweetened its offer in November, Raoul Restucci, the firm's exploration and production director for the Asia-Pacific region, said the proposed price "is above the top end of the experts' valuation of $11.87-14.07/share (Aus.)" for Woodside stock.

Moreover, he said then, "The offer is being made at a time of volatile and high oil prices-not at a time of depressed market conditions. The offer is also made at a time when the Woodside share price has been buoyed by considerable speculation in relation to a revised merger proposal from us."

Shell's revised proposal also included a swap of a substantial parcel of Shell properties, valued at $6.3-7.3 billion (Aus.), for 333.3 million new shares of Woodside stock. That portfolio of properties includes Shell's interests in the North West Shelf projects, Laminaria-Corallina, Greater Gorgon, and other selected Australian holdings, along with a 20% interest in its Brutus deepwater development project in the Gulf of Mexico.

The revised offer would more than double to $2.5 billion the direct value transferred to Woodside through that deal, up from $1.2 billion under the previous offer, Shell officials said. It is their final offer for Woodside, they said at the time.

But that proposed transfer of properties was not included in Woodside's assessment of the offer. The company lacks sufficient information about some of those assets to make a recommendation at this time, Akehurst said.

However, he promised that the offered properties "will be rigorously assessed to ensure that the value for all shareholders is properly understood before a recommendation is put to shareholders at a general meeting between March and June [2001]," he said.

Meanwhile, the independent directors pointed out that Shell would reap the benefit of a proposed yearend dividend of 60¢/share if other shareholders accepted its offer for their stock. They claimed the sale of stock could have adverse tax consequences for shareholders, too.

Woodside has the asset base, financial capability and the people "to deliver substantial growth over the next decade," said Akehurst. The company has one of the lowest finding costs in the world, averaging 51¢/boe since 1998.

Woodside-BHP deal

Under the terms of the $225 million deal, BHP would sell 15% of its share in the Ohamet risk service contract, its 50% stake in the Hassi R'mel West gas prospect agreement, and its 50% interest in the Boukhechba production-sharing contract.

The transactions would be subject to approval by the Algerian government and Sonatrach-which holds a right of reserve on the three projects.

OPECNA reported that the "most important" transfer of the three would be BHP's sell-down of its stake in the Ohamet project, a scheme targeting the development and production of LPG, condensate, and dry natural gas from the southern Algerian field.

BHP signed last July the Ohamet contract, which was worth $923 million, taking a 60% stake in the project. Following the transaction with Woodside, BHP will hold a 45% interest in Ohamet, while project partners JOOG of Japan and the US oil company Petrofac Resources International Ltd. hold respective shares of 30% and 10%.

Hunt-Berkley

Berkley Pres. Mike Rose described the $10/share offer by Hunt as "inadequate and opportunistic" and said his company has no intention of selling.

A number of financial analysts that hold Berkley stock also said they are reluctant to sell at the price offered by Hunt. Berkley's stock closed at $11.10/share Dec. 28 on the Toronto Stock Exchange.

However, Hunt officials claim their cash offer amounts to a 27% premium over Berkley's 30-day average weighted price of $7.88/share. The offer includes assumption of $379 million of Berkley debt effective Sept. 30.

Market analysts expect other offers now that Hunt has opened the bidding for Berkley.

Berkley has significant natural gas holdings in western Canada, including the Fort Liard region of Canada's Northwest Territories, and is involved in a major deep gas exploration play at East Lost Hills in California's San Joaquin Valley.

Hunt's offer is subject to regulatory approvals and acceptance by two-thirds of Berkley shareholders. It will be open for acceptance for not less than 21 days after mailing.

Ray L. Hunt, chairman and CEO of Hunt Oil, said the transaction is consistent with the company's strategy of developing new core areas of activity in select regions around the world. It reflects Hunt's strong optimism about Canada's energy sector and builds on Hunt's existing presence in Canada by establishing a strong platform for growth, he said.

Hunt lost out in a bid earlier this year for another Canadian independent, Ulster Petroleum Ltd., Calgary, when Anderson Exploration Ltd., Calgary, made a higher offer.

Marathon-Pennaco

Marathon will begin a cash tender offer for Pennaco this week. The boards of both firms approved the acquisition. The deal is subject to the usual conditions.

Pennaco produces only coalbed methane gas (CBM) from the Powder River basin of northern Wyoming and southern Montana. It is one of the largest leaseholders in the area, with more than 400,000 net acres and net production of over 50 MMcfd of gas. Net proven reserves are 200 bcf, with over 800 bcf of upside potential. Marathon estimated that the ultimate acquisition and development costs of the proven plus probable reserve base will be $4.50/boe.

Marathon Pres. Clarence Cazalot said, "Much of the growing global demand for energy will be met by natural gas, and this is particularly the case for the US, where growth in electric power generation is a prime driver. The North American gas market is a core area for Marathon, and this acquisition will enhance our already strong presence."

Paul Rady, Pennaco chairman, president and CEO, said, "Over the past 21/2 years, Pennaco's management team and employees have made outstanding progress in building and developing our position in the Powder River basin coalbed methane play."

Tom Brown acquisition

Tom Brown's pending acquisition of Stellarton establishes a significant core area in western Canada for the company, the company said.

Tom Brown expects this acquisition to be accretive to 2001 earnings and cash flow per share. The company said it expects pro forma debt to total book capitalization of 24%.

Stellarton's assets are located in western Alberta. Its net proved reserves after royalty are 58.6 bcf of gas and 2.82 million bbl of oil and NGL.

More than 80% of the current production and reserves are concentrated in three fields: Carrot Creek, Edson, and Drum- heller. Net production after royalty is 26.7 MMcfed. Stellarton owns 40 MMcfed of plant capacity. It also controls 155,000 net undeveloped acres, of which 65,000 net acres are located in the Hamburg-Chinchaga Slave Point gas play.

The acquisition has been unanimously approved by the boards of Tom Brown and Stellarton and is expected to be completed in early 2001.

Directors, officers, and other shareholders representing 51% of the outstanding stock of Stellarton have entered into agreements to tender their shares in the acquisition.

Statoil sale

Under the proposal put before the Norwegian parliament, the Storting, 10-25% of Statoil would be floated as early as this summer on the stock market as an initial public offering (IPO), with the government retaining at least two thirds of the shares in the company.

The specifics of the IPO, however, will not be finalized before the Storting's spring session. The parliament will also set a date for the offering.

In a statement released last month, Norway's Ministry of Petroleum and Energy stressed that while "expansion of the ownership will supply new expertise, new partners, and new capital," its proposal aimed to make sure a partly privatized Statoil would continue to be a "Norwegian-based company."

Statoil's headquarters, its "top management, its decision-making authority, and strategic functions," in keeping with the ministry's proposal, would remain in Norway.

The ministry added that the option to enter into "equity-based strategic alliances" with other companies would be open to Statoil, but only after the company was floated.

Along with the partial privatization of Statoil, Norway's government also put forward plans to sell 20% of the country's SDFI assets on the Norwegian Continental Shelf (NCS). The ministry said it would preserve its ownership of the outstanding 80%.

Mid-2001 IPO

Before next year's flotation, the government expects to sell 15% of SDFI-estimated by some to be worth 230 billion kroner-to Statoil through a cash and equity capital transfer arrangement. Another 5% will be sold to Norway's second largest oil company, Norsk Hydro AS, and "other [foreign] companies," which will pay cash for the assets.

Under the government recommendations, the SDFI asset portfolio would be managed by a new state-owned limited company based in Stavanger. The new company would not be granted operatorships but would "fulfill its purpose without possessing the same expertise as traditional oil companies," the ministry said.

"The SDFI assets will be managed by the company, at the account and risk of the state," said the ministry. "Costs and revenues relating to the assets will continue to be channeled through the state budget."

As part of the SDFI redistribution, the ministry said it is proposing a "swap" with Statoil of interests in the Europipe II trunkline and "selected fields" and its stake in the Norpipe and Statpipe pipelines, as well as a change in the ownership structure of the crude oil terminal at Mongstad, through which the government would gain a stake in the facility.

The government also proposed setting up an independent company to handle transportation of natural gas on the NCS. This organization would be set up as a limited company but be wholly owned by the state "until a lasting ownership structure in the pipeline system on the NCS has been established."

Fjell 'disappointed'