By OGJ editors
HOUSTON, Mar. 25 -- Santos Ltd., Adelaide, has entered into an agreement to acquire one company, while it was pondering the takeover of anther in as many days.
Santos, through its Santos Americas & Europe Corp. unit, Mar. 18 offered to purchase all the outstanding shares of Houston-based Esenjay Exploration Inc. for $2.84/share in a deal valued at $153 million (Aus.) ($80 million), including net debt and working capital of about $46.2 million (Aus.) ($24.2 million). Both companies' boards have approved the deal.
Then, on Mar. 20, Santos said it was "considering" making a takover offer for Orogen Minerals Ltd. for $2/share (Aus.), valuing the Sydney-based exploration and production firm at $642 million (Aus.). The offer came just a day before the Prime Minister of Papua New Guinea, Mekere Morauta, announced that the National Executive Council had endorsed a recommendation to accept an offer made earlier this year by Oil Search Ltd. to acquire Orogen.
In January, Oil Search proposed a merger between itself and Orogen that would create an upstream oil and gas firm with an aggregate market capitalization of $1.4 billion (Aus.). The state of Papua New Guinea, which holds 51% of the shares of Orogen, indicated support for the merger at the time.
In late February, the two firms received court approval for the merger. Meetings to approve the merger are set for Mar. 26. The companies hope to complete the merger in early April.
Esenjay deal
Santos's offer for Esenjay is a 4.4% premium to its Mar. 15 closing price, Santos said. Subject to the usual approvals, the companies expect the merger to be completed at the end of the second quarter.
"The United States, with a 23 tcf/year gas market, provides world competitive opportunities and attractive gas market fundamentals," noted John Ellice-Flint, Santos managing director. "In particular, US gas margins are generally better than in Australia," he added.
The deal is expected to add to Santos's portfolio:
-- More than 40,000 net acres of prospective leases in Texas and Louisiana, including the Frio, Wilcox, Yegua, and deep Vicksburg trends and the Hackberry embayment.
-- 32 new exploration prospects, 22 of which are drill-ready.
-- Access to 3,300 sq miles of 3D seismic.
-- Reserves of 47.3 bcf of gas and 1 million bbl of oil at yearend 2001.
-- Production of 16 Mcfed at yearend 2001.
On a pro forma basis, the deal will increase Santos's yearend 2001 proved and probable reserves in the US to 107 bcf of gas and 2.25 million bbl of oil and liquids. Total US production, meanwhile, is expected to reach 3 MMboe in 2002, Santos said.
Orogen transaction
Santos said a proposal to acquire Orogen would benefit Papua New Guinea, Australia, and Santos and Orogen shareholders.
For Papua New Guinea, Santos said, the merger would have strengthened the joint venture group underwriting of the Papua New Guinea gas project. Earlier this year, Santos backed out of the $3.5 billion, 3,200 km pipeline project to move Papua New Guinea natural gas to Australia (OGJ, Jan. 7, 2002, Newsletter, p. 8). ExxonMobil Corp. and the other partners in the project—including ChevronTexaco Corp., Oil Search, and Orogen—signed a new agreement without Santos.
Santos went on to say that its proposed offer for Orogen was "demonstrably superior" to that of Oil Search, namely because its offer was in cash and that it would represent a premium to Oil Search's offer.
Reaction
Following Santos's announcement of its Orogen deal, Moody's Investors Service said it would be "closely monitoring developments" between both firms.
Moody's said Mar. 21, "To the extent that Santos makes a formal bid to acquire Orogen, [Santos Finance Ltd.'s] Prime-2 rating will be either confirmed or placed on review for possible downgrade, depending on the company's funding plan and the potential impact the transaction will have on Santos's operating and financial profile."