The consolidation trend between major energy companies and independent exploration and production companies would appear to be picking up some momentum.
Early last week, Kerr-McGee Corp., Oklahoma City, said it will acquire San Francisco-based HS Resources Inc. in a cash and stock deal valued at $1.7 billion. The sale price includes the assumption of $450 million in debt.
Kerr-McGee's move to buy HS Resources follows close on the heels of the announcement made earlier this month by Williams Cos. Inc., Tulsa, to acquire Denver-based Barrett Resources Corp. (OGJ, May 14, 2001, p. 38).
Another consolidation trend has reemerged among service and supply companies:
- Weatherford International Inc., Houston, said late last month it has acquired Aberdeen-based Orwell Group PLC, an international provider of oil field services for drilling, fishing, remediation, and marine applications.
- Financially-troubled Allis-Chalmers Corp., based in Brookfield, Wis., completed an agreement to merge its one operating subsidiary, a Houston-based equipment com- pany, into OilQuip Rentals Inc. through a stock-swap.
- W-H Energy Services Inc., Houston, plans to acquire Coil Tubing Services LLC, Broussard, La., a coiled tubing and related services provider.
- In a move that expands its electrical control systems line, National Oilwell Inc. acquired Tech Power Controls Co. for about $10 million, sources said. Both companies are based in Houston.
- Kaneb Co.'s UK pipe repair company Furmanite and composite materials specialist DML Composites, a unit of Devonport Royal Dockyard Ltd., plan an alliance targeting the permanent repair of pipes, pipe- lines, and vessels.
In other company news, the Norweg- ian Ministry of Petroleum earlier this month sold 15% of the state's direct financial interest (SDFI) in offshore oil and gas exploration licenses to Statoil AS for 38.6 billion kroner ($4.2 billion), in advance of the state-owned firm's upcoming partial privatization this summer.
Kerr-McGee-HS deal
Once completed, the acquisition will make Kerr-McGee the fourth largest independent in the US, based on reserves, the company said. Boards of both companies have unanimously approved the deal, which is still subject to approval by HS Resources stockholders and by regulatory bodies. It is expected to be completed in the third quarter.
HS Resources shareholders will be able to take cash or stock so that 70% of the total HS Resources shares are acquired for $66 in cash and 30% are acquired in exchange for 0.9404 shares each of Kerr-McGee stock.
HS Resources is an independent oil and gas company with projects in the Denver-Julesburg basin, US Gulf Coast, Midcontinent, and northern Rocky Mountain regions.
Nicholas Sutton, HS Resources chairman and CEO, said, "As a small-cap E&P company, our stock price is not accorded valuation multiples commensurate with the value of our work, assets, and production."
Kerr-McGee said the transaction involves acquiring proved reserves of 1.3 tcfe of gas, at a cost of $1.10/Mcfe, as well as gas gathering facilities, undeveloped acreage, and other assets valued at about $300 million. It said the reserves-which consist largely of gas in the Denver-Julesburg basin-will increase Kerr-McGee's proved US gas reserves by 77% and increase the company's reserve life for US gas by 2 years. Kerr-McGee's total proved reserves will increase by 20%.
Luke Corbett, Kerr-McGee chairman and CEO, said, "The addition of these long-lived natural gas reserves, concentrated near one of the fastest-growing energy markets in the US, creates another core operating area for our company that provides significant growth opportunities. These properties also offer the potential to add more than 500 bcf from probable reserves through identified projects that have a proven track record of success.
"HS Resources has a focused exploration program onshore on the Gulf Coast that supplements Kerr-McGee's high-potential deepwater prospect inventory. This transaction dovetails with our strategy to build a balanced portfolio of quality oil and gas assets that offers meaningful upside potential."
After closing the transaction, Kerr-McGee's production volumes are expected to increase 15%, with gas production increasing more than 45% in the US. Total unit lifting costs are expected to decrease about 6%.
Kerr-McGee said that it would "retain substantially all" of HS Resources' operating personnel. "The combination of quality assets and their disciplined and successful exploration and production team further enhances the value of this transaction to Kerr-McGee, Corbett noted.
Following the company's acquisition announcement, New York City-based Moody's Investors Service placed Kerr-McGee's ratings under review for possible downgrade. Moody's said that it would assess the impact of the transaction on the company's financial leverage and on its "near-term plans to reduce debt while funding development of its significant proven undeveloped reserves."
Weatherford deal
Terms call for Weatherford to buy Orwell for $250 million, consisting of 3.37 million shares of Weatherford common stock and $85 million in assumed debt.
The acquisition provides significant consolidation savings, increases Weather- ford's stake in international markets, and provides spare equipment capacity, Weatherford said.
Orwell's operations will be integrated into Weatherford's drilling and intervention services division.
Allis-Chalmers deal
Under its agreement, Allis-Chalmers will issue 10 million shares, or 86% of its outstanding stock, to former OilQuip shareholders.
In return, Allis-Chalmers will be relieved of its $66.7 million indebtedness to the Pension Benefit Guaranty Corp.-which resulted from a lengthy reorganization process that the company underwent after filing for protection under Chapter 11 bankruptcy proceedings in June 1987.
Although its name was once closely identified with tractors and other farming equipment, Allis-Chalmers now has only one active subsidiary, Houston Dynamic Service Inc. (HDS), in Houston, which services and repairs primarily compressors, pumps, and turbines. Last year, the company reported a net loss of $189,000, or 12¢/share.
Following the merger, the new Allis-Chalmers will investigate opportunities for acquisitions in natural gas exploration and drilling, using HDS as a centralized fabrication and machining facility for its operations.
Under the merger agreement, Munawar H. Hidayatallah, CEO and controlling shareholder of OilQuip, was named as the new chairmen, president, and CEO of Allis-Charmers.
OilQuip, through its Mountain Compressed Air Inc. subsidiary, provides air-drilling services for natural gas exploration and production in the US.
Mountain Compressed Air has warrants for the purchase of an aggregate 20% of its outstanding shares. That includes a warrant issued to Wells Fargo Energy Capital entitling the holder to acquire 13.5% of the outstanding shares.
The exchange of stock is expected to be approved at a special meeting of Allis-Chalmers shareholders in June or July, officials said. Hidayatallah said he has been granted proxies representing 70% of Allis-Chalmers common stock.
W-H acquisition
Under terms of the agreement, W-H will pay $43 million in cash, common stock, and convertible subordinated notes and assume $4.5 million in debt. The transaction is expected to close within a month.
Coil Tubing's management team and employees will be retained. Coil Tubing will be operated as a separate business unit, W-H said.
W-H Energy is a diversified oil field service company providing products and services for the drilling, completion, and production of oil and natural gas wells.
National Oilwell purchase
National Oilwell would not say exactly what it paid to acquire Tech Power, but inside sources put it close to $10 million.
Tech Power Controls designs, manufactures, and services silicon-controlled rectifier (SCR) systems for land and offshore rigs.
That will expand National Oilwell's control systems product line in the currently growing market, officials said. Real estate is not included in that acquisition, so National Oilwell will continue leasing space in Tech Power Controls current plant "for the foreseeable future," officials told OGJ Online.
National Oil designs, manufactures, and sells systems and components used in drilling and production of oil and natural gas worldwide.
Furmanite-DML alliance
FD Alliance will couple Furmanite's range of onsite, online repair and maintenance services with DML's expertise in composite materials technology for the oil and gas industry.
Composite materials can repair pipe without disrupting production. Furmanite reported 1,100 repairs using composite materials in the North Sea in 1999. The materials can be applied to hard-to-access areas. Under the FD Alliance banner, the two companies carried out composite repairs to an extensive section of heavily corroded pipe on Shell UK Exploration & Production Co.'s Dunlin Alpha platform in the North Sea in April.
Repairs involved two 24-in. seawater headers and a 12-in. firewater main that were externally corroded. The work was completed in 33 days without stopping production. Other repair methods would have required a 3-week shutdown.
FD Alliance will be formally launched next month, followed by a 6-12 month worldwide rollout program.
Statoil's SDFI sale
The sale of SDFI stakes includes interests in 10 of the largest producing fields on the Norwegian Continental Shelf-Troll, Gullfaks, Snorre, Vigdis, Tordis, Visund, Statfjord East,
With the SDFI sale, Statoil reserves will jump to 4.5 billion boe from 3 billion boe, while its production will climb to 1 million boe/d from 700,000 boe/d.
The Norwegian government aims to float 15-25% of the beefed-up Statoil through an initial public offering as early as June, a percentage that could rise to 33% via partnership agreements. The state will retain the remaining two-thirds stake in the company.
Background
The partial privatization of Norwegian state oil firm Statoil "will not be Statoil in a new dress," according to Norway Deputy Minister of Petroleum and Energy Bj rg Sandal.
On Apr. 26, the Storting had approved a proposal to offer up to a third of Statoil for private ownership and to list the company on the stock exchange. "Expanding ownership will supply new expertise, partners, and capital," Sandal said. She told reporters in Houston earlier this month that, in her view, the movement to privatize the state firm would be "a really, really big step for the Norwegian government" as well.
The Storting also approved the sale of part of SDFI. In a presentation May 3, Minister of Petroleum Olav Akselsen restated that 6.5% of the SDFI assets would be sold to other oil companies, including Norway's second largest, Norsk Hydro AS.
The government is in the preparatory stage to establish two new companies: a state-owned firm to manage the SDFI portfolio and an independent company to transport natural gas on the NCS.
"Today's management model for the SDFI has functioned satisfactorily since it was established in 1985," Sandal noted. "The present management model contains a number of positive features, which we have decided to retain."
The proposed state-owned SDFI management firm would serve its purpose "without possessing all the expertise of a traditional oil company," Sandal explained. She added that the company would not apply for licenses on its own account and would not be given operatorships. "Activities in which the company is involved will be functionally related to petroleum activities on the NCS," she said.
The transportation company would "concentrate its activities on system operations, license administration, and overall supervision of the transport infrastructure on the NCS," Sandal noted.
The company-at least for the immediate future-would be owned by the state "until a durable form of ownership has been found for the Norwegian pipeline system," she said.
Viet Nam asset sale
In an unrelated transaction, Statoil said it will sell its Viet Nam operations, including the group's stake in the BP PLC-operated, $1.3 billion Nam Con Son project, to an unnamed buyer.
Statoil said the sale, which is subject to various contractual and government approvals, is in line with its upstream strategy of asset divestment that "strengthens the group's position in core areas where Statoil is, or has a chance of becoming, operator," namely western Europe, Venezuela, the Caspian region, and West Africa (OGJ Online, Mar. 9, 2001).
Gas deliveries from Nam Con Son, which embraces development of the Lan Tay and Lan Do gas-condensate fields on Block 6/1 off southern Viet Nam, a gas pipeline to shore, and a gas receiving station, are scheduled to start up next year.
Statoil had owned 13.33% of the field developments, which are operated by BP with 26.67%. Other partners are India's ONGC Videsh Ltd. with 45% and state company PetroVietnam with 15%. In the pipeline, Statoil held 16.33%. BP would operate the gas pipeline with 32.67%, and PetroVietnam would own 51%.