Major oil and gas companies continue to add to their global portfolios or restructure their businesses upstream and downstream in an effort to maintain a competitive edge in high-growth regions of the world.
Some of the biggest companies can find the going rough at times, however.
Woodside Petroleum Ltd.'s independent directors late last month rejected as "inadequate" a sweetened offer by an Australian unit of the Royal Dutch/Shell Group to gain a 56% controlling interest in that company, up from the 34.3% it now holds. Shell Australia Investments Ltd. made a cash offer of $14.80/share (Aus.), plus a call option for one share of Woodside stock, exercisable at the same price if Shell's separate merger proposal is approved by Woodside shareholders.
The bid for Woodside, which operates Australia's massive Northwest Shelf LNG export venture, marks Shell's continuing expansion into the Asia-Pacific natural gas market.
The going was easier for Shell in New Zealand, where the New Zealand Commerce Commission approved the sale of gas-focused Fletcher Challenge Energy Ltd. to units of Shell and Apache Corp. Houston. Last month, the regulatory agency rejected the companies' $4.6 billion (NZ) joint bid because of competition concerns (OGJ Online, Oct. 12, 2000).
Meanwhile, Shell Overseas Investments BV and China National Offshore Oil Corp. (CNOOC) agreed late last month to jointly develop projects in oil and gas exploration and production and gas marketing.
Among other examples of multinationals juggling their assets and portfolios:
- ENI SPA's directors approved a project for the restructuring of its Snam gas subsidiary and its storage business. Gas transmission operations will be transferred to a new company in 2001 to comply with European Union and Italian decrees deregulating the gas sector.
- French gas major Gaz de France SA (GdF), will pick up a 10% stake in Petronet LNG Ltd., building on an existing "strategic partnership" with the Indian national gas pipeline company.
- BP and TotalFinaElf SA subsidiary Atofina agreed on how to split up their joint polypropylene subsidiary Appryl. The companies began planning to dissolve the joint subsidiary, formed in 1986, earlier this year. Appryl is owned 49% by BP and 51% by Atofina.
- Statoil AS signed a deal with Turkey's KOC Holdings to form a jointly owned Turkish gas company that will take the Norwegian energy giant into that country's downstream gas market once market liberalization gets under way.
- A unit of Williams will buy TransCanada Pipeline Ltd.'s 49.25% interest in the Accroven NGL project in Venezuela. The deal is subject to government approval. Financial terms were not disclosed.
- Phillips Petroleum Resources Ltd., Calgary, wants to sell its interests in the Zama oil and gas fields in northern Alberta, which produce 16,500 boe/d.
The Shell unit's offer "provides the best of both worlds to Woodside shareholders," said Raoul Restucci, Shell's exploration and production director for the Asia-Pacific region.
"Not only can shareholders realize immediate value through the cash offer, but they also have the opportunity to buy back their shares at the same price if the merger proposal is approved, thereby preserving the opportunity to benefit from the value created by the merger proposal," he said.
Shell is trying to gain control of the company to ensure that a meeting of Woodside shareholders is convened to consider Shell's revised merger proposal. Shell would not be allowed to vote its Woodside stock at that meeting.
The revised proposal involves swapping a significant parcel of Shell properties, valued at $6.3-7.3 billion (Aus.), for 333.3 million new shares of Woodside stock. That portfolio of properties includes Shell's interests in the North West Shelf project, Laminaria-Corallina, Greater Gorgon, and other selected Australian holdings, along with a 20% interest in its Brutus deepwater development project in the Gulf of Mexico.
The revised offer would more than double to $2.5 billion the direct value transferred to Woodside through that deal, up from $1.2 billion under the previous offer (OGJ Online, July 18, 2000). That figure represents the discount to Woodside of the fair market value of the Shell properties as determined by a third-party expert, officials said.
"The proposed merger will give Woodside the size, scale, and operational reach it needs to become the premier listed oil and gas company in Australia and the Asia-Pacific region," said Peter Duncan, chairman of Shell companies in Australia, in a written announcement.
"The cash offer price is final and will not be increased," Restucci said. "We are offering a price that is above the top end of the experts' valuation of $11.87-14.07/share (Aus.)" for Woodside stock.
Moreover, he said, "The offer is being made at a time of volatile and high oil prices-not at a time of depressed market conditions. The offer is also made at a time when the Woodside share price has been buoyed by considerable speculation in relation to a revised merger proposal from us."
However, Woodside's independent directors, who considered the offer in the absence of the Shell-nominated directors, said it "does not contain an adequate premium for transfer of control of the company to Shell." They said they would provide Woodside shareholders "with detailed recommendations shortly."
In their written statement, the independent directors said, "Woodside has seen considerable success during the yearellipsewith several new oil and gas discoveries, progress with new projects in the North West Shelf and the Timor Sea, and a significant improvement in the company's financial position. Shell's revised proposal to sell assets to Woodside in return for a large placement of Woodside stock will require careful analysis to determine whether the value of Woodside is fully recognized." They promised "to ensure that this analysis is undertaken."
The proposal, "or a negotiated modification of it," will likely be presented to Woodside shareholders at a general meeting "in the March-June period of next year," the independent directors said.
If the merger takes place, Shell also plans to establish a technical services company in Perth to provide exploration and development support services for Shell operating companies in the Asia-Pacific region.
Shell wants to cash in on development of Australia's gas resources and the expected strong demand growth for LNG in the Asia-Pacific region.
Shell, Apache acquisition
In order to win the New Zealand government's approval, Shell agreed to divest some of Fletcher's large New Zealand gas assets. Shell will get the Fletcher Challenge Energy subsidiaries in New Zealand and Brunei.
Apache will acquire Fletcher Challenge Energy's holdings in Argentina and western Canada for $600 million. Those holdings represent proved reserves of 713 bcf of gas, roughly 12% of Apache's current proven reserve base (OGJ Online, Oct. 10, 2000).
The deal is still subject to other regulatory, court, and shareholder approvals but is expected to close by the end of the first quarter, with an effective date of July 1, 2000.
Shell, CNOOC agreement
Based on its proposed deal, Shell will purchase 20%-or up to $300 million-of shares from the initial public offering of CNOOC Ltd., the IPO vehicle of CNOOC. A previous estimate was $200-400 million (OGJ Online, Nov. 13, 2000).
CNOOC will launch its IPO on Hong Kong and New York stock exchanges in February and plans to raise up to $2.5 billion, the Chinese firm said.
CNOOC is in talks with BP on another strategic alliance. Officials of CNOOC report BP could invest up to $200 million in CNOOC Ltd. BP declined to comment.
In September, Shell bought 14% of the IPO of China Petroleum & Chemical Corp. (Sinopec). Sinopec launched an IPO last month, raising $3.73 billion.
In October, Shell and CNOOC signed a 50-50 JV contract to build an 800,000 tonne/year ethylene cracker in Huizhou in southern China's Guangdong province.
CNOOC, China's major offshore oil operator, is expanding into downstream businesses such as petrochemical manufacturing, natural gas retailing, and power plant operations.
The company is also expected to double its oil production to 30.3 million tonnes/year and produce 10 billion cu m (bcm)/year of gas by 2005, up from 4 bcm/year currently.
According to the agreement, Shell and CNOOC will soon sign contracts for the joint exploration and development in the Bohai Sea covering five oil and gas fields on three blocks.
The fields are about 100 km north of Longkou in 100 m of water, with estimated reserves of 1 tcf of gas and 600-700 million bbl of oil.
The two companies plan to supply 400-800 million cu m/year of gas from Bohai Sea fields to customers in Shandong.
In the East China Sea, CNOOC and Shell will participate in natural gas exploration and production in the Xihu trough area, which is 350 km southeast of Shanghai.
CNOOC and Shell will also jointly market natural gas to customers such as power plants in eastern China, including Shandong, Anhui, Henan, Jiangsu, Shanghai, Fujian, and Zhejiang provinces, from their production in the East China Sea.
They will jointly conduct feasibility studies for a gas transmission network linking major coastal cities in eastern China and will form joint ventures where appropriate. The pipeline studies are expected to start in 2001.
CNOOC has announced that the company will build a 4,000-km gas pipeline grid along China's coast to sell its gas in eastern China.
CNOOC and Shell have also agreed to jointly operate LPG facilities for automobiles in Beijing. CNOOC will supply LPG to Shell's existing retail service stations in Beijing.
Following ENI's restructuring of Snam, shares of the newly formed company will be listed, and ENI could sell the majority share. "We won't necessarily keep the control of the new company," said ENI's CEO Vittorio Mincato. He said that if the market offers enough money, ENI might give up its majority holding.
ENI's 29,000-km system has 20 compression stations and 561 decompression stations. In 1999, the network carried 67.1 bcm of gas. ENI values the network at 10 billion euros.
ENI will also transfer its gas storage system, one of the largest in Europe, to a new company.
As a way of using its gas surplus, ENI is investing in the newly deregulated power generation business (OGJ Online, Oct. 19, 2000). ENI wants to buy a 30% share of the newly constituted Elettrogen consortium from ENEL SPA, the state electricity company.
If the government won't permit the purchase, ENI could refurbish the old power plants it has at refining and petrochemical plants and build new ones. In Italy, ENI aims at having a power production capacity of 5,000-7,000 Mw, Mincato said.
Outside of Italy, ENI is concentrating on its core gas production business, with the objective of reaching 1.5 million boe/d by 2003.
It recently agreed to cooperate with Libya to build a gas pipeline from Zu
"With this contract," said Mincato, "we are completing the placement of the gas arriving from the fields that ENI is developing in Libya with its Libyan partner at an investment cost of $5.6 billion. We expect to complete the placement of the remaining 2 bcm by the end of the year."
"With this initiative, ENI will be giving a substantial boost to the opening up of the European gas market-a market in which ENI intends to play an increasingly important role. Our program is, in fact, to develop our gas activities abroad to substitute development in Italy, limited by the ceiling imposed by the [deregulation] decree."
ENI strategies also include new partnerships with other big European players.
In October, Snam, Gazprom, and three major European gas companies-GdF and Germany's Ruhrgas AG and Wintershall AG-signed an agreement to study and develop a project to link the Yamal-Europe pipeline, carrying Siberian gas, to Slovakia (OGJ Online, Oct. 19, 2000).
GdF CEO Pierre Gadonneix said his company had "identified India as one of our four priority investment areas, [and] intend[s] to play a major role in this country in the fields of liquefied natural gas purchase, conception, and operation of a receiving gas terminal, land transport, and gas sales."
Gadonneix said the shareholding agreement would be signed before Jan. 31, 2001.
The French major will float a separate joint venture company for operation and maintenance of Petronet's 5 million tonne/year regasification terminal at Dahej on the Gujarat coast.
The new company will be formed with GdF as the majority shareholder and will take in engineering, procurement, and construction contractors as minority equity holders, in order to ensure rapid development of local content of the operation and maintenance services for the company.
BP-Atofina split JV
Under a restructuring agreement, TotalFinaElf unit Atofina will take over Appryl's assets and polypropylene business in Gonfreville, France, including resins and compounds supplied to the automotive industry. BP, meanwhile, will take over Appryl's assets and polypropylene business in Grangemouth, Scotland, which began production in August 2000.
BP and Atofina will set up a 50-50 manufacturing JV at Lavera, France, operated by Atofina. Lavera's polypropylene production will be split between the two partners. Atofina and BP will each supply 50% of the propylene feedstock needed by the polypropylene unit.
Atofina and BP will both have access to the technology developed by Appryl. The agreement is expected to be effective Jan. 1.
The dissolution was an aftermath of two mergers, first between BP and Amoco Corp. in 1998, and later between TotalFina SA and Elf Aquitaine SA at the end of 1999.
Details of the agreement were not disclosed.
Statoil-KOC Holdings venture
According to Statoil Project Director for European Gas, Per Lindberg, the deal between Statoil and the KOC group of industrial companies confirms that cooperation between the companies will be "extended."
"We've now taken a step into the Turkish market," Lindberg said. "This will be an important factor in achieving profitable sales for our Shah Deniz gas reserves in Azerbaijan's sector of the Caspian.
"Both sides can now contribute actively to speeding up deregulation of the Turkish market and to positioning the new company as an important downstream player there."
The new company will open an office in Istanbul in keeping with "the obligations and opportunities that follow from the deal," he said.
Williams NGL acquisition
The Accroven project is located in the Eastern Cryogenic Complex of Venezuela and includes the construction and operation of two 400 MMcfd NGL extraction plants, a 50,000 b/d NGL fractionation plant, and associated storage and refrigeration facilities for Petroleos de Venezuela SA (PDVSA).
Construction on the project began in mid-1999, with the three plants scheduled for operation in May 2001.
John Bumgarner, Williams International president, said, "This project fits strategically with Williams's other investments in Venezuela. We expect Accroven will provide PDVSA with significant natural gas liquids volumes available for export, as well as residue gas used to maintain and enhance oil recovery in eastern Venezuela."
Williams is involved in two enhanced recovery projects in Venezuela, Pigap II and one in the El Furrial area. It also operates the Jose crude oil storage and ship loading terminal.
Jim Taylor, president of the Canadian unit of Phillips, said the company plans to redeploy assets into core areas. It will retain about 2,000 boe/d of production in Canada.
Phillips recently acquired the Alaskan interests of ARCO, in the wake of the latter's acquisition by BP, and has expanded its operations in China and South America. Taylor did not disclose a target price for the Zama assets but said the company would consider a swap for natural gas assets in the US.
Waterous & Co., Calgary, is handling the sale of the Zama properties and hopes to complete the sale by the end of March. A data room has been opened for potential buyers. Waterous said the property was the largest single Canadian asset ever made available in a public offering.
The Zama properties produce about 90 MMcfd of gas and 7,500 b/d of oil. Phillips said Zama will generate cash flow of about $155 million this year. The sale package includes three sour gas plants and 149 miles of gas gathering systems.