Oil and gas companies' recent merger and acquisition activity involved various international transactions. BP PLC was a player in two separate deals as the British oil and gas company hones its global refining strategy. BP plans to sell some US refining assets while buying into the German fuels market.
In the latest flurry of M&As:
- BP agreed to sell its Salt Lake City and Man- dan, ND, refineries and associated assets to Tesoro Petroleum Corp., San Antonio, for $677 million, excluding working capital.
- BP agreed to buy a majority stake in Veba Oel AG in a deal arranged as two joint ventures between BP and Veba's owner, E.On AG. BP will take 51% and operational control of the subsidiary, which owns Aral, Germany's largest fuel retailer.
- Lukoil Overseas Holdings Ltd., a subsidiary of the Russian Lukoil Co., agreed to acquire Bitech Petroleum Corp., Toronto, for $1.55/share (Can.), or $123 million.
- Dynegy Inc., Houston, agreed to buy BG Storage Ltd. and associated assets from UK company BG Group PLC for £421 million. The deal is subject to regulatory approval.
- Petrobank Energy & Resources Ltd. and Ventus Energy Ltd., both of Calgary, agreed to merge. The resulting new company will have three core areas in western Canada with 1.1 million net acres of undeveloped land, including northwestern Alberta, central Alberta, and southeastern Saskatchewan. Petrobank brings to the new company an agreement with Petroecuador to evaluate the commerciality of Pungarayacu and Oglan heavy oil fields in Ecuador's Oriente basin. It also holds a 15% working interest in three exploration blocks off Guinea-Bissau.
Tesoro buys BP refineries
Tesoro's proposed deal with BP includes BP's 55,000 b/d Salt Lake City refinery and its 60,000 b/d Mandan refinery near Bismarck along with associated North Dakota crude and product pipe- lines, bulk storage, 8 product distribution terminals, and 45 retail gasoline stations.
BP will also assign to Tesoro contracts for about 300 Amoco-branded stations that are owned by about 80 Amoco-branded gasoline jobbers. BP acquired Amoco Corp. in 1998.
Subject to regulatory approvals and slated to close early in the fourth quarter, the acquisition would give Tesoro five refineries with a combined throughput capacity of 390,000 b/d along with 640 branded retail stations.
Bruce Smith, Tesoro's chairman, president, and CEO, said, "We believe that these additions improve our ability to rapidly supply markets in areas that we have previously targeted for retail and commercial marketing expansion."
Robert Malone, BP's regional president for the western US, said the divestment was consistent with BP's global refining strategy of retaining only refineries key to its clean fuels marketing operations or integrated with other parts of the business such as chemicals.
Finalization of the sale will leave BP with worldwide refining capacity of 2.8 million b/d, 1.5 million b/d of which is in the US. The company also plans to sell its 58,600 b/d Yorktown, Va., refinery and its share in Singapore Refining Co., it said.
The Salt Lake City refinery employs 90 people and has five processing units. The Mandan refinery employs 210 people. Its bulk storage and pipeline operations will be included in the sale.
Distribution terminals included in the agreement are in Salt Lake City; Boise and Burley, Ida.; Mandan and Jamestown, ND; and Moorhead, Sauk Centre, and the Twin Cities area in Minnesota.
The agreement includes company-owned gasoline stations in Utah and North Dakota and assignment of supply agreements for Amoco-branded gasoline stations in Idaho, North Dakota, Utah, Washington, Wyoming, Nevada, Oregon, Montana, and northwestern Colorado.
BP's Veba deal
BP could take full ownership of Veba as soon as the second quarter of 2002, which BP executives say could generate annual synergies of at least $200 million.
"E.On's wish to deepen its gas interests and exit downstream oil has presented BP with a unique opportunity to realize two strategic aims-achieve market leadership at the heart of Europe and realize excellent value for our stake in Ruhrgas [AG]," said BP CEO John Browne.
He said, "This transaction has the potential to transform [BP's market position in Germany] at a stroke, giving us the leading, most efficient fuels business in the world's third largest economy."
The arrangement also allows BP to exit Ruhrgas, which Brown called "a passive equity investment we have been seeking to monetize for a decade."
E.On will receive 51% of Gelsenberg AG, which holds BP's 25.5% stake in Ruhrgas, Germany's leading gas distributor, along with a cash payment of $1.63 billion while BP assumes $950 million in debt.
Terms also have been reached that could mean that BP will transfer its remaining Ruhrgas stake and pay an additional $340 million for the remainder of Veba.
BP said the cash cost of acquiring all of Veba could be offset "significantly" by the resale of the German oil and gas company's upstream business, which produces 160,000 boe/d. The potential proceeds would be shared with E.On, "with the bulk" being collected by BP.
Aral has 2,560 retail sites in Germany with fuel sales of 170,000 b/d and 1.7 million customers/day. Adding BP's existing German retail business would boost fuel sales to 230,000 b/d and retail revenues to over $2 billion/year.
Aral also operates 450 retail sites in neighboring European countries, including Austria and Poland, where BP has key positions.
On top of its retail assets, Veba owns the 80,000 b/d Lingen refinery, along with stakes in four other refineries in Germany with a total processing capacity of over 300,000 b/d.
BP said the addition of these plants would "significantly enhance its supply logistics and boost its clean fuels capacity" in central Europe, while Veba's petrochemicals business-which has an ethylene capacity of 1.3 million tonnes/year-would help meet BP's future chemical feedstock needs in the region.
BP said it intends to review Veba's upstream business, which has assets in 13 countries, including Venezuela, the UK, the Netherlands, and Norway, with a view to reselling assets that are "noncore" to BP's international portfolio.
Subject to the approval of the European Commission and other authorities, BP and E.On will form two joint ventures. One gives BP 51% and operating control of Veba, with the balance held by E.On, while the other gives E.On a 51% stake in Gelsenberg, which holds BP's 25.5% of Ruhrgas.
BP said that if it takes full control of Veba, it would merge Aral's operations into its own marketing business and retain Aral as BP's sole retail fuels brand in Germany. Such a consolidation would bring combined business costs down by around 15%, while "entailing some reduction in the workforce."
Lukoil to acquire Bitech
Lukoil's offer of $1.55/share (Can.) for Bitech represented a 99% premium over Bitech's July 16 closing price of 78¢/share on the Toronto Stock Exchange.
Bitech Pres. and CEO Nicholas Gay said, "This transactionellipsemay well be seen in future years as a watershed for the development of the Russian oil business."
Bitech's directors, officers, and major shareholders already have agreed to tender their shares amounting to about 42% of the outstanding common shares. The offer is conditioned upon at least two-thirds of Bitech's common shares being tendered.
Bitech's board unanimously agreed to recommend that shareholders accept the offer. Lukoil Overseas is funding the acquisition from internal cash resources. Bitech agreed not to solicit or initiate discussions with any third party.
The circular associated with the offering is expected to be mailed to Bitech shareholders soon, and the offer will expire 35 days thereafter, unless extended by Lukoil Overseas.
Lukoil Pres. Vagit Alekperov said, "Bitech's operations in the Komi Republic represent an important addition in terms of reserves and production to Lukoil's projects in the Timan Pechora oil and gas province."
Bitech's recent acquisition of Vanguard Oil Corp. also provides exploration projects in Egypt, Morocco, Tunisia, and Colombia, together with the acquisition of a license in Sakhalin, which has "potential to provide Lukoil Overseas with important building blocks for future ex- pansion," he said.
Dynegy-BG deal
Dynegy called the transaction with BG "a major expansion of its energy convergence business," while BG said the sale secured the greatest shareholder value for the assets.
BG Group will continue to have a commercial relationship with BG Storage to enable BG Group to carry out its gas trading activities.
Dynegy will pay for BG Storage largely with cash, and the company will become part of Dynegy Europe Ltd.
BG Storage's assets include the partially depleted Rough offshore storage facility in the southern North Sea that has deliverability of 1.5 bcfd and 9 underground storage caves in Hornsea, East Yorkshire, that have combined deliverability of 620 MMcfd. The two storage facilities have a combined capacity of 111 bcf of gas. Assets also include a 73% stake in the Easington onshore gas processing terminal at Humberside.
In addition, the company recently secured planning permits to develop six salt caves at Aldbrough, near Hornsea.
Associated assets include the remaining 27% interest in the Easington onshore gas processing terminal, which is owned by another BG Group subsidiary; the Ame- thyst gas processing and condensate transportation agreement; and BG Group's interest in the offshore York discovery that extends into Block 47/3d.
