Oil and gas companies continue to launch reorganization programs and divestment campaigns designed to maintain a competitive edge in the ever-changing energy business landscape.
Effective January 2002, Koch Industries Inc., Wichita, Kan., is restructuring its subsidiary, Koch Petroleum Group LP (KPG), into two companies-Koch Supply & Trading LP (KST) and Flint Hills Resources LP (FHR).
Meanwhile, CMS Energy Corp., Dearborn, Mich., said it has changed its business strategy and will sell its upstream and downstream interests in Equatorial Guinea to Houston-based Marathon Oil Co. for $993 million.
Also, CMS placed on the sale block its nonstrategic international power generation assets, which include two South American electric distribution businesses. The planned asset sales are expected to raise $2.4 billion.
Separately, Russian oil firm TNK Oil Co. (TNK) has inked two joint venture deals and an oil supply deal:
- TNK and Itera have established a JV based on the assets of gas producer Rospan, which is in bankruptcy proceedings.
- Parker Drilling Co., Tulsa, and TNK formed a JV to provide contract drilling services throughout Russia.
- BP Oil International, a unit of BP PLC, agreed to buy 1.65 million tonnes of oil from TNK Oil over a 10-year period.
In other company news:
- BG Group PLC plans to sell its Italian exploration subsidiary BG Rimi SPA to CPL Concordia Soc. Coop. ARL of Modena, Italy, for 34 billion lire.
- Norwegian contractor Kværner ASA has agreed to a proposed solution for its financial difficulties. The solution involves financing through Russian oil company Yukos Oil Co. and a group of Norwegian and international banks. An underwriting consortium for 3 billion kroner ($340 million) has been formed to implement a rights offering.
- Alberta Energy Co. Ltd., Calgary, said it will sell its 13.75% interest in Alberta Oil Sands Pipeline Ltd. (AOSPL) to Pembina Pipeline Corp. for $225 million (Can.).
- UK company Consort Resources Ltd. will acquire a package of southern North Sea assets from Enterprise Oil PLC, London, for £28 million.
Koch restructuring
Koch Industries said KPG's reorganization will allow the resulting two subsidiaries to take advantage of growth opportunities. Both companies will continue to be based in Wichita.
KST, a trading company, will focus on global trading and risk management activities in crude oil, refined petroleum products, metals, and other commodities.
FHR, a refining and chemicals company, will include the Corpus Christi, Tex., and Pine Bend, Minn., refining complexes, as well as associated functions, such as refined products marketing, chemicals trading, Canadian oil sands development, and some other crude oil supply activities.
Some trading activities will remain in FHR, including those geared toward ensuring supply of crude oil to the refineries (in Canada and South Texas), refined products trading in the US Midwest, and chemicals trading worldwide.
CMS divestitures
CMS said its planned divestitures would strengthen its balance sheet, provide more predictable earnings, and lower its business risk by focusing fu- ture business growth in North America.
Through the purchase of CMS's Equatorial Guinea assets, Marathon will acquire a 52.4% interest in, and gain operatorship of, the offshore Alba Block, which contains the producing Alba natural gas field as well as undeveloped discoveries and several undrilled prospects.
Marathon also will gain a 37.6% interest in adjacent offshore Block D, a 52.4% interest in an onshore gas processing plant, a 45% interest in a JV onshore methanol production plant; and a 43.2% interest in an onshore LPG plant.
The deal is expected to close in January.
CMS is negotiating to sell its interest in the Loy Yang Power facility in Australia and its interests in Equatorial Guinea for a total of $1.2 billion. It signed a deal late last month to sell its Michigan electric transmission system for $290 million.
The company also said it is committed to maintaining its annual dividend at $1.46/share. It said that, as a result of proceeds from the asset sales, its debt will fall to 58% of capital by yearend 2002 and 55% by late 2003.
CMS predicted earnings in 2002, excluding 85¢/share from the asset sales, to be about $2/share. It said that figure reflects substantially lower oil and gas commodity prices and lower utility sales due to the weak economy.
Beyond 2002, it said earnings per share should rise 7-9%/year with growth principally in electric and gas marketing, exploration and production, pipelines, midstream, and LNG receiving and processing.
Marathon's acquired assets
Alba field-which began producing in 1991-has reserves of 5 tcf of gas and 300 million bbl of condensate. It is producing 230 MMcfd of wet gas, from which 17,000 b/d of condensate and 2,400 b/d of LPG are recovered at the plant on Bioko Island. About 115 MMcfd of the remaining lean gas is then fed to the methanol plant. Marathon's net share is expected to average 18,000 boe/d in 2002.
Plans have been submitted to increase gross production to 800 MMcfd and expand the condensate recovery and LPG facilities. This should result in Marathon's net production increasing to nearly 40,000 boe/d by 2004, the company said.
Marathon's net reserves associated with this acquisition are 142 million bbl of liquids and 646 bcf of gas, or 250 million boe. Of that, 183 million boe of proven reserves will be booked on closing, with the remainder on securing appropriate approvals for the expansion project in early 2002.
Marathon said that, based on the 250 million boe reserve level, the cash acquisition cost is $3.97/boe. By including $327 million of anticipated future development costs, the full cycle acquisition and development cost is $5.28/boe.
It said, "Significant incremental potential value exists in commercializing the remaining dry gas reserves. Marathon sees great promise in known technologies that could allow this gas, and future opportunities, to be commercialized."
TNK-Itera JV
Itera controlled Rospan when it declared bankruptcy last year. In June, TNK acquired more than half of Rospan's $78 million debt (OGJ Online, June 8, 2001).
Itera will hold 56% and TNK 44% of the JV. The company will be reregistered in Novy Urengoi in the Yamalo-Nenets Autonomous Area.
TNK Executive Director German Khan said, "We regard this agreement as TNK Oil's big start in Yamal. In implementing our plans, we will certainly rely on our partner's experience and support by the governor and regional administration."
Rospan has reserves of 568 billion cu m of gas and 96 million tonnes of condensate in the East Urengoi and Novy Urengoi fields in northwestern Siberia.
Parker-TNK JV
The drilling services JV will introduce internationally accepted oil field practices and work to make TNK's drilling more efficient. It will also upgrade TNK's drilling and workover rigs. Parker will manage the drilling services.
The first project, to begin in January, will involve 5-10 TNK rigs working in Samotlor oil field in Western Siberia.
The companies did not disclose the financial terms of the contract.
"This is an excellent opportunity to further expand our international operations in a market yet to be tapped by Western drilling contractors," said Robert L. Parker Sr., chairman of Parker Drilling.
TNK Pres. and CEO Simon Kukes said, "Our association with Parker Drilling Co. meets our objective of bringing Western-style drilling techniques and field management to Tyumen Oil's drilling activities. I am convinced that this strategy is the best way to increase the speed and productivity of our drilling."
BP-TNK oil deal
The BP-TNK oil supply deal is part of financing arrangements for the upgrade of TNK's Ryazan refinery 120 miles southeast of Moscow (OGJ Online, Sept. 11, 2000). ABB Group unit ABB Lummus Global is carrying out the work (OGJ Online, Apr. 16, 2001).
"TNK and BP have been working closely together on a number of projects, and this oil supply agreement represents a further expansion of our relationship," said Joseph Bakaleinik, TNK's chief financial officer.
The two companies are partners in Russia's Sidanko oil company and Rusia Petroleum natural gas company.
"This long-term contract with TNK will further consolidate BP's leadership in the Russian crude oil market and will help satisfy the crude oil needs of our refineries," said Anders Morland, president of BP Russia.
BG divestiture
BG's Italian assets include nine exploration permits and 18 production concessions. BG is keeping 12 exploration licenses in the Po Valley and Sicily Channel. They have been transferred to BG Italia SPA.
In 2000, BG Rimi had net gas production of 72 million cu m.
Yvonne Barton, president of BG Italia, said, "This sale is part of BG Group's strategy of disposing of noncore assets. We have rationalized our exploration and production presence in Italy to concentrate our activities on larger exploration prospects in the Po Valley and the Sicily Channel. Our commitment to the Italian energy market is further supported by our Serene power generation activities and our plans to develop the Brindisi liquefied natural gas project."
Roberto Casari, president of CPL Concordia, called the acquisition "in line" with CPL Concordia's strategy to be involved Italy's entire gas chain, particularly after liberalization of the Italian gas market. "CPL Concordia will increase the gas supply of its subsidiary Energia della Concordia with the acquisition of BG Rimi," Casari said.
BG Group has been active in Italy since 1992 operating as BG Italia and BG Rimi. Following this transaction, all operations will be carried out through BG Italia.
With partners ENI SPA and Edison SPA, BG Italia is involved in exploration in the Po Valley and the Sicily Channel. It is also a partner in Serene SPA, a joint venture that owns and operates cogeneration units with combined power capacity of 400 Mw at five sites adjacent to Fiat Auto factories.
BG Italia is promoting a $300 million LNG import terminal in Brindisi on the southeastern coast of Italy. It is envisaged that a first train could be supplying the Italian market from early 2006.
Kværner refinancing
Kværner has also entered into a deal with the lenders to propose a conversion of about 4.5 billion kroner in debt to a subordinate convertible note. The deal presumes existing loans will be rescheduled to the end of 2004.
"This is a solution that mirrors the efforts of many parties who have genuinely wanted to find a long-term solution for Kværner," said Harald Arnkværn, chairman of Kværner. "Important shareholders, led by Yukos, have contributed to this solution, which gives us the opportunity to move forward, develop the company, and demonstrate to the world that Kværner, with its 35,000 employees and unique qualities, is a viable going concern. The foundations that have now been established should also make it attractive for investors to participate in the rights offering," he concluded.
The plan is dependent on acceptance by all lenders. Also, shareholders are set to approve the 3 billion kroner rights issue by the end of November. "This solution will remove the uncertainty that has made it difficult for the group to access all of its available cash in various subsidiaries," Kværner said.
The company will reduce the cost of financial advisors and establish a working group to reduce outstanding claims. Also, Kjell E. Almskog, president and CEO, has waived his right to 2 years' salary upon his departure.
Kværner said it considered "concrete proposals" from rival contractor Aker Maritime AS but said that the proposals implied a considerable write-off of loans that lenders were not willing to accept.
Yukos proposed this rescue plan late last month.
Also late last month, Yukos increased its stake in Kværner to 12% and bid to increase it to 25% (OGJ Online, Oct. 22, 2001).
Yukos's proposal to Kværner would provide the company with working capital pending completion of negotiations for the restructuring of debt and establishing a guarantee consortium for an equity rights issue. The capital would represent partial payment for the acquisition of the hydrocarbon and process technology businesses.
Yukos plans to complete the purchase of Kværner's hydrocarbon and process technology businesses for $100 million as previously announced. Yukos said separately that in case the acquisition of Kværner's hydrocarbons and process technology businesses falls through, it will offer employment to employees of those businesses and make up financial losses caused by wage arrears if they decide to work for Yukos.
Pembina's pipeline interest
AEC said it carried a net book value of $150 million for AOSPL. The transaction is due to close by yearend.
AOSPL is the exclusive transporter of synthetic crude oil production from Syncrude Canada Ltd.'s plant, near Fort McMurray, Alta., to Edmonton. The 430 km line moves 220,000 b/d under agreements with the Syncrude participants.
Hector McFadyen, president of AEC's midstream operations, noted that the transaction follows the recent sale of AEC's Jonah gas gathering system in Wyoming.
"The realization by AEC from these transactions will total close to $800 million and underscores the value of AEC's midstream assets. These sales will have only a modest impact on the future income from AEC's remaining core midstream assets."
As of Sept. 30, the company's midstream assets had a book value of $2.9 billion and were forecast to generate $300 million in operating cash flow in 2001.
The company said the AOSPL sale strengthens its financial position. On a pro forma basis on Sept 30, AEC's upstream debt to capitalization ratio was 34% and upstream debt to cash flow, on a trailing 12-month basis, was a ratio of 1.1. Its midstream debt to capitalization ratio remained un- changed at 60%.
Corsort's North Sea assets
Corsort's acquired assets include interests in Johnston and Anglia producing fields and the Orca-Beta potential gas development.
They were part of Enterprise's acquisition of Petroleo Brasiliero SA's UK holdings (OGJ Online, June 21, 2001).
Subject to government and other approvals, Consort will complete the acquisition by an effective date of Jan. 1, 2002.
Peter Kallos, Enterprise's general manager, UK, said the firm made the deal so as to better focus on other assets. "It remains a central aim of the group to enhance its position as a key participant in the UK North Sea, not least through the successful trading of assets where appropriate."
Consort will acquire a 10% interest in Production License 686 (Block 43/27), which includes a 7.3710% stake in Johnston field; a 32.802% interest in P.128 (Blocks 48/18b and 19b), which contains Anglia field; a 32.802% interest in P.1011 (Block 48/19e) in the Anglia area; and a 12.5% interest in P.611 (Block 44/ 24a), which contains the Orca-Beta prospect.