Two major deals highlight U.S. M&A activity
U.S. petroleum industry merger and acquisition activity continues apace with last week's disclosure of two major deals together worth $4 billion.
Mapco Inc. and Williams Cos. Inc., both of Tulsa, have signed a definitive merger agreement under which Williams will acquire Mapco in a stock-for-stock transaction. The deal is valued at $2.7 billion.
In another stock-swap deal, Sonat Inc., Birmingham, Ala., agreed to acquire Zilkha Energy Co., Houston. Total consideration in the merger, including assumption of debt, is $1.3 billion.
Williams-Mapco
Williams and Mapco agreed to exchange 0.8325 share of Williams common stock for each share of Mapco's. This equates to $46.15/share of Mapco stock, which is valued at about $38.13/share.The transaction is expected to close Dec. 29, the effective date of a common stock split by Williams. This means the exchange ratio will be 1.665 shares of Williams stock per share of Mapco.
Keith E. Bailey, chairman, president, and CEO of Williams, said, "Mapco's businessesellipseshould provide a growth rate comparable to our energy services segment, while doubling its current scale.
"Ultimately, we expect the futrure earnings contribution from energy services to exceed that of our regulated natural gas pipelines," said Bailey. "This should occur over a rapid enough time frame to provide an income bridge while the earnings capability of our communications business matures in the coming years."
Stephen Cropper, president and CEO of Williams' energy services segment, will lead the Mapco organization.
Williams unit details
Williams' energy service business includes:- A merchant services division that provides gas, power, and products marketing and energy financing and handles more than 30 trillion BTU/day equivalent (29.4 bcfd).
- A field services unit that operates 11,000 miles of gathering lines, 10 processing plants, and 8 treating plants and gathers almost 6 trillion BTU/day (5.9 bcfd).
- A petroleum services division that operates a 9,200-mile pipeline system and 53 products terminals that move an average 616,400 b/d and have access to 35% of U.S. refining capacity (this division also can produce 100 million gal/year of ethanol).
- An exploration and production unit that operates 448 wells, has gas reserves of 532 bcf, and owns 1,220 sq miles of 3D seismic data.
Mapco details
Mapco's major businesses include:- A division that offers NGL marketing services and has gathering, processing, underground storage, and distribution systems, including the Mid-America Pipeline.
- Two divisions that each operate a refinery-one in Alaska that produces 40,000 b/d of products sold in Alaska, Canada, and the Pacific Rim, and another in Memphis.
- Thermogas propane marketing company, Mapco Express convenience stores, FleetOne fleet operator and motor fuel and data management division, and energy information management company Touchstar Technologies LLC.
Sonat-Zilkha
Under terms of Sonat's acquisition of Zilkha, Sonat will issue shares of its common stock worth $1.04 billion and assume $260,000 in debt and other obligations.Sonat says it will account for the acquisition on a pooling-of-interests basis.
Zilkha has achieved impressive growth as a result of its Gulf of Mexico drilling program and high exploratory success rate, according to Sonat. Since 1992, Zilkha has drilled 79 gross exploratory wells, achieving a 66% success rate and a weighted-average finding cost of $0.87/Mcf equivalent.
Zilkha's production reached 79 bcf equivalent this year, and reserves total 415.3 bcfe.
The company has accumulated the industry's largest net leasehold position in the shallow-water Gulf of Mexico. It holds interests in 421 federal blocks, 75% of which cover 1.4 million undeveloped acres.
Zilkha also has about 61,000 sq miles of 3D seismic data covering "a significant portion of the shelf and deepwater acreage," according to Sonat.
Donald G. Russell, chairman and CEO of Sonat Exploration Co., said Zilkha offered the best opportunity for Gulf of Mexico reserves additions and production growth that he has seen in years. Russell expects to keep Zilkha's management team and organization intact and merge Sonat's Gulf of Mexico operation into the more-extensive Zilkha unit.
Sonat Chairman, Pres., & CEO Ronald L. Kuehn, Jr., said the acquisition makes Sonat the sixth largest U.S. independent.
"Not only does this acquisition provide us with a better strategic and growth-potential balance between offshore and onshore, but it will also accelerate our shift to increased exploration activity," said Kuehn. "We can move forward quickly to drill the wells necessary to exploit these opportunities."
Kuehn added, "This acquisition is another step toward our longer-range objective to become one of the three leading independent oil and gas producers in North America."
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