Company News: Marathon Oil to acquire Ashland's stake in MAP

April 5, 2004
In a deal that Marathon Oil Corp. said would complement its long-term growth plans, the Houston-based integrated petroleum company will acquire Covington, Ky.-based Ashland Inc.'s 38% interest in Marathon Ashland Petroleum LLC (MAP) for $2.93 billion.

In a deal that Marathon Oil Corp. said would complement its long-term growth plans, the Houston-based integrated petroleum company will acquire Covington, Ky.-based Ashland Inc.'s 38% interest in Marathon Ashland Petroleum LLC (MAP) for $2.93 billion.

Marathon already holds a 62% interest in Findlay, Ohio-based MAP. Once completed, the deal will make Marathon sole owner of MAP, the largest refiner in the US Midwest and the fifth largest refiner in the US.

In another multibillion dollar downstream deal, Lyondell Chemical Co., Houston, and Millennium Chemicals Inc., Hunt Valley, Md., have agreed to a stock-swap merger that will create the third-largest independent, publicly traded chemical producer in North America.

The deal is valued at $2.3 billion, including assumption of $1.3 billion of Millennium's debt.

In upstream news:

Royal Dutch/Shell Group sold its 4 billion shares in China Petroleum and Chemical Corp. (Sinopec) for $742 million, before fees and expenses, on the public markets.

BG Group PLC subsidiary BG Canada Ltd. plans to make a $171 million takeover offer for Aventura Energy Inc., Calgary, in an effort to acquire additional gas exploration and production operations in Trinidad and Tobago.

Kosmos Energy LLC, Dallas, and Pioneer Natural Resources Co., Irving, Tex., agreed to jointly explore the west coast of Africa from Morocco through Angola.

In contractor news:

Oceaneering International Inc., Houston, has terminated its previously announced acquisition agreement involving the remotely operated vehicle (ROV) business from the Subsea 7 Group, London (OGJ Online, Dec. 4, 2003).

Marathon-MAP

Clarence P. Cazalot Jr., Marathon president and CEO, said, "Acquiring full ownership of MAP provides us with substantial growth opportunities and leverages our access to the profitable Midwest growth markets. At the same time, Marathon will retain the financial and operational flexibility to continue investing in new and existing core exploration and production operations, as well as our emerging integrated gas business."

Ashland Chairman and CEO James J. O'Brien said, "This transaction represents the best opportunity for Ashland and its shareholders to capture the value that has been created through this joint venture."

Closing of the deal is expected in the fourth quarter and is contingent upon numerous conditions, including a favorable tax ruling from the US Internal Revenue Service as to the tax-free nature of the transaction, Ashland shareholder approval, Ashland public debt holder consents, and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act.

As part of the transaction, Marathon plans to acquire certain other complementary Ashland businesses for an additional $94 million.

These additional transactions involve Marathon's acquisition of Ashland's maleic anhydride business, including the company's Neal, W.Va., plant, which is adjacent to MAP's Catlettsburg, Ky., refinery.

Marathon also will acquire part of Ashland's Valvoline Instant Oil Change business, consisting of 61 retail outlets in Michigan and Ohio.

"While not part of MAP, these additional assets are complementary to MAP's business," Marathon said.

MAP owns and operates seven refineries with a total capacity of 948,000 b/d of oil as well as more than 8,000 miles of pipeline.

MAP markets its petroleum products through a network of nearly 6,000 retail outlets under the Marathon, Speedway, Super America, and Pilot Travel Center brands.

MAP's refinery locations and capacities are Garyville, La., 245,000 b/d; Catlettsburg, 222,000 b/d; Robinson, Ill., 192,000 b/d; Detroit, 74,000 b/d; Canton, Ohio, 73,000 b/d; Texas City, Tex., 72,000 b/d; and St. Paul Park, Minn., 70,000 b/d.

Lyondell-Millennium

The new company will retain Lyondell's name and will be headquartered in Houston.

Dan F. Smith will continue as president and CEO, and William T. Butler will continue as Lyondell's independent chairman.

Two independent members of Millennium's current board will be added to Lyondell's board at closing.

Millennium will become a wholly owned subsidiary of Lyondell. The combined company would have pro forma 2003 revenues of more than $11 billion and market capitalization of nearly $4 billion, officials said.

Under a definitive agreement, Millennium shareholders will receive 0.95-1.05 share of Lyondell common stock for each share of Millennium common stock, depending on the volume-weighted average price for Lyondell shares during a 20-day period.

Millennium shareholders will receive 0.95 share of Lyondell stock if its price averages $20.50/share or greater, and 1.05 share if the average price is $16.50/share or less.

Between those two prices, the exchange ratio would vary proportionately.

The new shares to be issued for the new company will receive the same cash dividend as existing outstanding Lyondell shares.

The transaction is subject to customary conditions, including approval by both companies' shareholders, and is expected to close in the third quarter.

Officials said the two companies are well-positioned globally and are leaders in propylene oxide and derivatives, titanium dioxide, and acetyls markets.

Through their Equistar joint venture—a major North American producer of ethylene, propylene, polyethylene, and aromatics—they claim significant leverage to take full advantage of the recovery in the petrochemical cycle.

The combined company will operate in 16 countries and employ 10,000 people worldwide.

The acetyls business is a significant consumer of ethylene consumer and integrates "very well" with Equistar's petrochemical business, officials said.

Millennium is No. 2 in North American capacity for acetyls and is No. 3 in the world, utilizing proprietary technology at its world-scale manufacturing facility in La Porte, Tex.

Shell-Sinopec

Shell issued a brief statement saying that Sinopec remains a valued partner of Shell, and that the two companies are jointly developing numerous projects even though Shell has now sold its Sinopec stock.

One such project is a joint venture for a coal gasification facility in Hunan Province. The facility is under construction.

Shell has five production-sharing contracts signed last year with Sinopec, China National Offshore Oil Corp., and Unocal Corp. for the exploration and production of natural gas in the East China Sea.

In addition, Shell and Sinopec have a 500-station retail joint venture, awaiting final government approval of a contract.

BG-Aventura

Martin Houston, executive vice-president, BG North America, Caribbean and Global LNG, said Aventura is attractive to BG because its assets are close to the Cross Island Pipeline.

The 56-in. Cross Island Pipeline is being constructed to transport gas from the east coast of Trinidad to Atlantic LNG in Point Fortin.

The Atlantic LNG Train 1, in which BG is a 26% shareholder, began operation in April 1999.

It exports LNG to the US, Puerto Rico, and Spain.

BG's acquisition of Aventura is subject to Canadian securities law. BG expected the offer to be mailed to Aventura shareholders by Mar. 31.

BG's offer must remain open for at least 35 days after the offer is posted to Aventura's shareholders.

Aventura operates and holds a 65% participating interest in the 111 sq km Central Block exploration license in southern Trinidad.

Petrotrin, the state-owned hydrocarbon company, holds the other 35%.

In 2000, an exploration well, Carapal Ridge, a structure within the Central Block, tested at 62 MMscfd of gas and 1,625 b/d of condensate.

Kosmos-Pioneer JV

Kosmos, Dallas, is a new company led by James C. Musselman, formerly CEO of Triton Energy Ltd. Amerada Hess Corp. acquired Triton Energy for $3.2 billion in 2001 (OGJ Online, July 10, 2001).

Musselman said Kosmos has "extensive technical and operational expertise in West Africa, most notably in the discovery and development of Ceiba field in Equatorial Guinea."

Pioneer Chairman and CEO Scott Sheffield said he looks forward to working with the Kosmos executive team to build Pioneer's success off Gabon.

"Their proven West Africa track record combined with our deepwater development expertise is a strong combination to deliver success in this prospective hydrocarbon province," Sheffield said.

Kosmos said it has "provisional commitments of up to $300 million" from company management, Warburg Pincus LLC and Blackstone Capital Partners, an affiliate of Blackstone Group, to pursue exploration and development of oil and natural gas in West Africa.

Oceaneering-Subsea 7

Oceaneering International terminated its agreement to acquire 82 ROVs from Subsea 7 for $108 million pending a satisfactory due diligence review.

"It is in the best interest of both parties to terminate the agreement without further obligation," an Oceaneering release said.

Oceaneering said it will expense an estimated $1.5-1.8 million in pretax accumulated transaction costs during the first quarter.