Company News: CNPC unit offers $4.18 billion for PetroKazakhstan

Sept. 12, 2005
A unit of China National Petroleum Corp. has offered $4.18 billion for PetroKazakhstan Inc., Calgary, and the boards of both companies have approved the offer.

A unit of China National Petroleum Corp. has offered $4.18 billion for PetroKazakhstan Inc., Calgary, and the boards of both companies have approved the offer.

PetroKazakhstan’s board recommended its shareholders accept the offer from CNPC International Inc. during a special shareholders meeting slated for October. Closing is expected by Oct. 15 pending necessary regulatory and court approvals.

In other recent company news:

• Pioneer Natural Resources Co. is pursuing divestment of properties in the deepwater Gulf of Mexico and of its nonoperated properties in southern Argentina’s Tierra del Fuego.

• Woodside Petroleum Ltd. has acquired Gulf of Mexico independent Gryphon Exploration Co., Houston, for $283 million plus assumption of $14 million in debt.

• Plains All American Pipeline LP and Vulcan Capital agreed to pay $250 million to acquire a Sempra Energy subsidiary having two natural gas storage utilities.


The proposed transaction outlines a $125 million break-up fee that PetroKazakhstan would pay CNPCI, which has the right to match any other offer.

PetroKazakhstan’s Pres. and Chief Executive Bernard Isautier said that he knew of no company preparing a bid that could rival the CNPCI offer. Under the CNPCI transaction terms, PetroKazakhstan is prohibited from soliciting other offers.

Isautier noted that PetroKazakhstan’s board is obligated to consider any competing bid and would have to recommend any superior proposal to shareholders if one materialized. His comments came during an Aug. 22 conference call with analysts, reporters, and investors.

“We view this transaction as solid.... We expect it to be completed,” Isautier said during the conference call. He said that he did not foresee any right-of-refusal issues with the Kazakhstan government because the transaction involves stock.

Meanwhile, India’s Oil & Natural Gas Corp. had expressed interest in buying PetroKazakhstan. ONGC executives told reporters in India on Aug. 22 that they have not ruled out the possibility of making a counter offer to the CNPCI offer.

Although based in Calgary, PetroKazakhstan’s operations are in Kazakhstan. The company had been said to be a likely candidate for a bidding contest (OGJ, July 11, 2005, p. 26).

“Regarding other companies that might have expressed an interest in the company, we are subject to confidentiality agreements,” Isautier said.

Chinese companies are looking abroad to acquire more oil and natural gas assets. Chinese President Hu Jintao has visited Russia and Kazakhstan in search of access to more oil and gas (OGJ, July 11, 2005, p. 25).

In an unrelated deal that prompted international attention, CNOOC Ltd. withdrew its unsolicited offer for Unocal Corp., citing politics as the reason for ending a bidding contest between itself and Chevron Corp. (OGJ, Aug. 8, 2005, p. 29).

Unocal shareholders overwhelmingly accepted a cash-stock takeover bid from Chevron during a special meeting near Los Angeles. The transaction’s final value, excluding debt, was $17.9 billion (OGJ Online, Aug. 1, 2005).

For PetroKazakhstan, CNPCI offered $55/share in cash. In addition, CNPCI agreed to also consider a proposal in which PetroKazakhstan incorporates a new oil and gas company to be spun off of PetroKazakhstan.

The proposed new company would seek oil and gas development opportunities in countries other than Kazakhstan, PetroKazakhstan said, adding that it still was too early to describe plans.

If PetroKazakhstan were to approve that suggestion, then it would be up to CNPCI to decide whether to accept the spinoff proposal. If CNPCI were to accept, then the Chinese company would pay PetroKazakhstan shareholders $54/share in cash and one share of the new company’s stock for every existing PetroKazakhstan share.

Isautier said individual shareholders could elect how many shares in the proposed new company that they wanted. Some shareholders would be allowed to accept only cash if that is what they wanted.

This “mix-and-match” arrangement was set up because some shareholders might not be interested in the proposed new company, Isautier said.

Pioneer divestments

In addition to its planned divestments, Pioneer announced plans on Sept. 1 to reduce its exploration budget to 15-20% of total capital from 30%, reallocate capital to US and Canadian holdings, and initiate a $1 billion stock repurchase plan.

The Irving, Tex., company said high commodity prices and an active asset market prompted its decision to sell the properties. Since entering the deepwater Gulf in 1998, Pioneer drilled 33 successful exploration and development wells and gained interests in three producing deepwater projects and 90 deepwater blocks. Meanwhile, Pioneer also expanded and balanced its exploration portfolio in onshore North America, Alaska, and Africa and believes these opportunities are better aligned with its exploration objectives.

Pioneer executives believe they can reduce exploration risk and production volatility by selling deepwater properties.

Tim Dove, Pioneer’s president and chief operating officer, said, “We are significantly expanding our development drilling programs in our Spraberry and South Texas fields in the US and the Chinchaga and Horseshoe Canyon fields in Canada, and coming into this year, expanded our Raton domestic drilling program.”

Dove said Pioneer also is pursuing commercialization of two discoveries in Alaska and has an active exploration program focused on prospects with nearer-term production impact planned for this winter.


Woodside said its acquisition of Gryphon would boost its 2005 exploration budget by $11 million and its capital spending by $26 million and give it a diverse mix of shelf and deepwater holdings.

Gryphon, formed in 2000 from the assets of Cheniere Energy Corp., had 64.1 bcf of gas and 1.4 million bbl of liquids proved reserves, 86% of which are gas, as of June 30, 2005. Proved and probable reserves totaled 114 bcfe.

Gryphon’s 30 MMcfed of production from 15 fields, 11 of which it operates, becomes Woodside’s first output in the gulf, where it already has a large acreage position. Woodside expects the assets to add 6 bcfe to its production in 2005 and 26.3 bcfe in 2006.

Gryphon operated three of six fields under development in which it holds interest and held interests in 118 gulf leases, 95 operated, off Texas and Louisiana covering 300,000 net acres. The company has 15 drillable prospects and another 65 prospects in inventory.

Cycle time from discovery to production has averaged 104 days on Gryphon-operated properties, Woodside said. Gryphon has four exploration wells in progress.

Plains buys storage

The two storage facilities being acquired are Bluewater Gas Storage in St. Clair, Mich., which has a 20 bcf capacity, and Pine Prairie Energy Center, which is a 24 bcf project still under development in Louisiana. Pine Prairie is expected to be operational in mid-2007 and fully developed by late 2009.

The transaction is expected to close this month, subject to regulatory approvals and other closing conditions.

The Plains All American-Vulcan joint venture is owned equally by Plains All American and a subsidiary of Vu lcan Capital. Plains All American will be responsible for the JV’s daily operations.

The JV anticipates investing an additional $260 million during the next several years to complete the Pine Prairie development.