Statoil-Hydro merger would create world’s largest offshore operator

The new company will have a combined production of 1.9 million barrels per day in 2007 and proven oil and gas reserves of 6.3 billion barrels of oil equivalents. Hydro will continue as a global aluminum company.

On Dec. 18, Statoil and Norsk Hydro announced their intention to merge, with Norsk Hydro’s aluminum operations continuing as a separate company. The proposed shareholdings in the new company are 67.3% to Statoil shareholders and 32.7% to Norsk Hydro shareholders. The Norwegian government will hold 62.5% of the combined company.

Current combined production is 1.9 MMboe/d and proved reserves are 6.3 billion barrels. The combined upstream portfolio of the two companies is valued at US$57 billion. The split of the value between Statoil and Norsk Hydro assets is around 70:30.

In Norway, Norsk Hydro will add operatorship of 16 commercial fields. The two companies have overlaps of interests in many assets in Norway. Out of the 49 upstream assets which Wood Mackenzie considers to be commercial (onstream, under development, or likely to receive development consent in the near future) in Norsk Hydro’s Norwegian upstream portfolio, 43 are assets in which Statoil also has an interest. Of the remaining 6 assets only Norsk Hydro’s stake in Grane is material.

Wood Mackenzie commented that there would appear to be substantial opportunities to achieve cost synergies through the merging of the two companies’ operations. However, the initial press release has indicated that personnel reductions are expected to be limited.

There are obvious political sensitivities, said a Wood Mackenzie spokesman. Given Statoil and Norsk Hydro’s large government stake and their role as two of the largest employers in Norway, opportunities for near-term direct cost savings may be reduced. However, the consulting firm expects a good proportion of such synergies to be realized in the future as staffing levels adjust to new operational requirements.

Moreover, in what is a tight world-wide market for experienced upstream staff, the headroom created by the merger will allow the combined company to pursue new growth opportunities without the human capital constraints faced by many industry players.

Accessing international opportunities, particularly in world-class plays, has become much more challenging and is clearly an area where the largest companies dominate. By scaling up in size the new company will be more able to command a seat at the negotiating table alongside its (still) larger supermajor/major competitors.

Wood Mackenzie continued: “In our opinion, the new company will be in a relatively advantageous position to pursue new business development opportunities because of the release of experienced resources from its largely overlapping domestic operations referred to above.”

“While the Norwegian government’s majority stake may be viewed as negative, given that the state’s priorities may not always be aligned with the interests of shareholders, there has been minimal interference by the state to date and the majority interest is unlikely to be a shareholder concern, going forward. In fact, given the increased global

nationalization of resources, the combined group could likely benefit from promoting its state-owned credentials in areas where it is politically advantageous to do so and leveraging access to new opportunities through NOC to NOC initiatives in areas such as training and technology transfer.”

In conclusion, Wood Mackenzie noted: “The combined company’s gas production, together with that which Statoil currently markets on behalf of the state DFI, will be around 70% of total Norwegian production. This in turn amounts to an average 15 to 16% of European gas production. Clearly the addition of Norsk Hydro’s approximately 1 bcf/d of production strengthens the bargaining position of Norway Inc. going forward. However, we would not foresee any great problems with European commissioners looking at this issue due to the reputation of Norway as a reliable supplier, the still relatively low level of the overall market which it controls and the lack of any immediate alternative source of supply.” - Mikaila Adams

Forest Oil to acquire Houston Exploration For $1.5 billion

Denver-based Forest Oil’s proposed $1.5 billion acquisition of Houston Exploration Co. is being seen by all parties in a favorable light. The “friendly” takeover is supported by the boards of both companies, and several stockholders have made comments in support of the deal, which is scheduled to close in the second quarter of 2007.

The $1.5 billion price includes $740 million in cash and 23.6 million shares of Forest Oil’s common stock. Forest Oil shareholders will own 73% of the combined company, while Houston Exploration shareholders will own 27%. Forest will assume $100 million in debt from Houston Exploration.

Jana Partners, a New York hedge fund that holds nearly 15% of Houston Exploration’s stock, told Forbes magazine that the deal will put the Houston E&P company in the hands of what it sees as more competent management.

Last June, Jana Partners offered $62 a share - about $1.8 billion - for Houston Exploration as it criticized management for failure to concentrate on shareholder returns. Jana said the company should have hedged when gas prices were around $10, but instead the company has seen prices plummet and company stock along with it.

In a written statement, Barry Rosenstein, Jana’s managing partner, commented: “Given the current environment, we believe this is a good deal, and we have confidence that Forest Oil is the right company to maximize the value of these assets.”

In a conference call with analysts, David Keyte, Forest Oil’s CFO, said, “We do have a view that gas in the next 3 years is going to improve from here. We have to have that view or we wouldn’t be buying a 100% gas asset.”

The combined company will have estimated proven reserves of about 2 tcfe, with about 70% of that natural gas, and daily production of about 520 MMcfe.

Forest Oil CEO H. Craig Clark said the company plans to divest itself of its Alaska business in 2007 in order to reduce debt and narrow its geographic focus. Houston Exploration’s drill sites are mostly in Arkansas, South Texas, and the Rocky Mountains.

After the merger, Forest Oil said it plans to open a new office in Houston. - Don Stowers

GE to acquire Vetco Gray

GE is expanding its presence in the global oil and gas industry, entering into an agreement to acquire Vetco Gray for $1.9 billion from Candover, 3i & JP Morgan Partners.

The closing of the transaction, which is subject to conditions including the receipt of governmental, regulatory and other approvals, is expected in early 2007.

Vetco Gray supplies drilling, completion, and production equipment for on- and offshore oil and gas fields, including subsea applications. The business, which is expected to generate over $1.6B of sales in 2006, employs 5,000 people in more than 30 countries, with key centers in Houston, Aberdeen, Stavanger, Oslo, and Singapore. Major products include flow control valves, control systems, wellheads, manifolds, risers, and associated after-market services.

“This acquisition enables GE to seize faster growth in a rapidly expanding global business,” said Claudi Santiago, CEO of GE Oil & Gas. “Vetco Gray expands the portfolio of products, services and solutions available to one of the world’s most dynamic industries.”

“We believe this agreement will be great news for our employees and customers,” commented Peter Goode, CEO of Vetco International. “The combination of GE’s recognized technical expertise and financial resources and Vetco Gray’s industry know-how and domain knowledge will allow the business and its employees to continue to prosper as it meets our customers’ most difficult challenges.”

“We are tremendously excited about this transaction and look forward to welcoming the Vetco Gray team into our business,” concluded Claudi Santiago. “Their technology track record, depth and breadth of talent are well known and are strong differentiators in this industry. We are extremely confident about the prospects of growth accorded by the combination of our two businesses.”

Upon completion of the transaction, Candover, 3i & JP Morgan Partners will continue to own Vetco Aibel, which is engaged in the business of design, engineering, construction and maintenance of oil and natural gas production facilities, process systems and related products.

GE Oil & Gas provides technology turbomachinery products and services, with engineering and manufacturing centers throughout Europe and the US. Based in Florence, Italy, the company offers complete solutions for oil and gas production, LNG, transportation, storage, refineries and petrochemicals, as well as pipeline integrity solutions. - Mikaila Adams

Kinder Morgan shareholders approve merger agreement to sell company to investor group

Kinder Morgan Inc.’s stockholders have voted to approve the proposed merger agreement providing for the acquisition of KMI by investors including chairman and CEO Richard D. Kinder, other senior members of KMI management, co-founder Bill Morgan, current board members Fayez Sarofim and Mike Morgan, and affiliates of Goldman Sachs Capital Partners, American International Group Inc., The Carlyle Group, and Riverstone Holdings LLC.

Approximately 100 million shares of common stock were voted at the special meeting, representing about 75% of KMI’s total outstanding shares. Of those shares voting, approximately 97 million, or about 97%, voted in favor of the adoption of the merger agreement, representing approximately 73% of KMI’s total shares. Approval by more than two-thirds of KMI’s total number of shares was required.

Under the terms of the merger agreement, promptly following the closing of the merger, KMI stockholders (other than Knight Holdco LLC, Knight Acquisition Co., subsidiaries of KMI, stockholders who have perfected their appraisal rights under Kansas law and stockholders defined in the KMI proxy statement as Rollover Investors) will receive $107.50 in cash, without interest, for each share of KMI common stock held. This represents a premium of approximately 27% over $84.41, the closing price of KMI stock on Friday, May 26, the last trading day before the investor group made its proposal to take the company private.

The transaction is anticipated to close in the first quarter of 2007, subject to receipt of regulatory approvals and the satisfaction of other customary closing conditions. The transaction is valued at approximately $22 billion and includes the assumption of about $7 billion of debt. - Mikaila Adams

Anadarko to sell $2 billion in assets to EXCO Resources, Apache; layoffs in the works

Anadarko Petroleum Corp. continues to try and balance the books after the acquisitions of Oklahoma City-based Kerr McGee and Denver-based Western Gas Resources last August. In these latest moves, the company has agreed to sell its Vernon and Ansley fields, located in Jackson Parish, La., to EXCO Resources Inc. for $1.6 billion, and controlling interest in 28 oil and gas fields in the Permian Basin of West Texas to Apache Corp. for $1 billion.

At the Nov. 1, 2006, effective date of the sale, the fields were producing 192MMcfe/d (net) from approximately 350 wells within Anadarko’s 66,000 net acres. Six drilling rigs and four work-over rigs are currently active in the fields.

“This divestiture is an important step in refocusing the portfolio following our acquisitions of Kerr-McGee and Western Gas Resources in August, and we are pleased with the value,” Anadarko chairman, president, and CEO Jim Hackett said. “These fields have been great assets for the company. However, the fields have reached the stage in their development cycle where it makes sense for us to monetize them, reduce leverage and focus on other attractive opportunities in our portfolio.”

The sale is expected to close in the first quarter of 2007, subject to customary closing conditions and adjustments. Jefferies Randall & Dewey marketed the assets and served as Anadarko’s financial advisor.

Further, the company has signed an exploration and production concession contract with the Government of Mozambique for Offshore Area 1 in the Rovuma Basin.

The 2.64 million-acre block, positioned in northeast Mozambique, includes approximately 90,000 onshore acres and stretches eastward 35 miles offshore, where water depths extend down to 6,000 feet. The block’s boundary borders Tanzania to the north and extends southward about 100 miles.

“Offshore Area 1 is a ground-floor opportunity to explore the highly prospective Rovuma Basin, where only two wells have ever been drilled,” said Bob Daniels, Anadarko senior vice president of worldwide exploration.

Under the terms of the contract, Anadarko has secured a 5-year initial exploration term with options to extend that phase another three years, and a 30-year production term following any commercial discoveries. Anadarko was awarded the block on the basis of a work commitment to acquire new 2D and 3D seismic and drill seven wells during the initial exploration term. Anadarko will operate the block, initially with a 100% working interest.

In a further move, Anadarko has sold controlling interest in 28 oil and gas fields in the Permian Basin of West Texas to Apache Corp. for $1 billion.

Apache will book net reserves of 70 MMboe (57 million barrels of oil and 78 billion cubic feet of natural gas). In 2007, the fields are forecasted to produce approximately 9,000 barrels of oil and 19MMcf of gas per day net to Apache.

“This agreement is another important step in refocusing the portfolio following our acquisitions of Kerr-McGee and Western Gas Resources in August,” Hackett said. “We are pleased with the value being realized through this transaction and will use the proceeds to further reduce leverage associated with the acquisitions.”

The transaction is expected to close by the end of March, and is subject to standard regulatory and other requirements. Apache intends to fund the acquisition with debt. Apache and Anadarko are entering into a joint-venture arrangement to effect the transaction.

“Anadarko’s Permian Basin divestiture is an excellent opportunity for Apache to operate high-working-interest fields that have a long reserve life and are a close fit with Apache’s existing Permian production,” said G. Steven Farris, Apache’s president and CEO. “The transaction is additive to per-share results, but -- as with any transaction -- the ultimate benefit will best be measured after we have operated and added value to these properties.”

Tristone Capital Inc. marketed the assets, while Lehman Brothers served as Anadarko’s financial advisor.

In a related move, the company could lay off an estimated 500 Houston workers. This too, is part of the restructuring of the books that continues after the company’s big acquisitions last year. The company has 2,200 employees in the Houston area and about 5,000 workers globally. The layoffs are scheduled between Feb. 1 and May 30. According to a letter to the Texas Workforce Commission, the employees affected will receive 6 months’ severance pay and help looking for new employment.- Mikaila Adams

ConocoPhillips to repurchase up to $1 billion in shares

ConocoPhillips, the third-largest US oil company plans to repurchase up to $1 billion of the company’s common stock.

ConocoPhillips expects first quarter 2007 purchases to be approximately $750 million. Prior to the conclusion of the first quarter of 2007, the company anticipates announcing its expected total share repurchase plan for 2007.

Acquisitions for share repurchase programs are made at management’s discretion at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. Purchases may be increased, decreased, or discontinued at any time without prior notice. Shares of stock repurchased under the plans are held as treasury shares.

Standard & Poor’s said the stock buyback initiative would not immediately affect the company’s corporate credit rating. However, it did say that with bad news about oil and gas reserve additions in 2006, it “substantially reduces ConocoPhillips’ upward rating momentum.”

S&P did say that the company has made progress reducing the large amount of debt it acquired with the $35.6 billion purchase of Burlington Resources Inc. last year.- Mikaila Adams

Sterling Energy to acquire Whittier Energy for $188MM

Houston-based Whittier Energy has entered into a definitive merger agreement with Sterling Energy plc. Sterling will acquire all of the outstanding shares of Whittier for $11.00 per share in cash resulting in aggregate merger consideration payable to Whittier equity holders of approximately $145 million. Sterling will also assume about $43 million of Whittier net liabilities.

The boards of directors of both companies have unanimously approved the transaction. In addition, Whittier Ventures LLC, holder of approximately 14.34% of the outstanding shares of Whittier, has agreed to vote in favor of the transaction. The transaction is subject to routine regulatory approvals and other customary conditions as well as approval by Whittier’s stockholders. The transaction is expected to be completed in the first quarter of 2007.

Bryce Rhodes, president and CEO of Whittier said; “This transaction allows Whittier Energy stockholders to realize substantial value at an attractive premium. It is keeping with our stated strategy from the outset of creating value for our stockholders by monetizing at the appropriate time. This has all been made possible by the very talented team of Whittier directors and employees.”

Ferris, Baker Watts Inc. is acting as lead financial advisor to Whittier. BMO Capital Markets also advised the company and rendered a fairness opinion to Whittier’s board. Thompson & Knight LLP acted as the company’s legal advisors.

Whittier Energy Corp. is an independent oil and gas exploration and production company with operations in Texas, Louisiana, and Mississippi. Whittier Energy also holds non-operated interests in fields located in the Gulf Coast, Oklahoma, Wyoming, and California.

Sterling is an independent oil and gas exploration and production company formed in October 2002 and listed on the Alternative Investment Market (AIM) of the London Stock Exchange.- Mikaila Adams