Two more mergers agreed upon in oil and gas industry

Sep 04, 2001 02:00 AM

Two mergers were agreed upon in the oil and gas industry, as rivals relentlessly consolidate in an effort to cash in on emerging exploration and production opportunities throughout the world.
In one deal, the offshore drilling companies Global Marine and Santa Fe International said they had agreed to merge in a $ 3 bn stock swap that would make the combined company, to be called GlobalSanteFe, the second-largest offshore drilling contractor in the world. Santa Fe will also assume about $ 900 mm in debt. The new company would have a market value around $ 6 bn.
Separately, Devon Energy, among the largest independent oil and natural gas companies in the United States, agreed to buy a Canadian company, Anderson Exploration for about $ 3.4 bn in cash and the assumption of $ 1.2 bn in debt.
The deal comes less than three weeks after Devon, of Oklahoma City, had agreed to buy the Mitchell Energy and Development for $ 3.1 bn in cash and stock. A formal announcement of Devon's acquisition of Anderson is expected.

The transaction could make Devon the largest independent oil and gas exploration and production company in the country, analysts said, outstripping Anadarko Petroleum. The latest deals underscore the growing pressure on companies throughout the various segments of the oil and gas industries to join forces or risk losing business to larger competitors.
C. Steadman Garber Jr., Santa Fe's president and CEO, said: "If you look at what our major customers are doing -- there's ExxonMobil and BP that's dropped the 'Amoco,' and Chevron acquiring Texaco, and TotalFinaElf -- they are consolidating. And they are looking for contractors on an extended basis, in any market, and we now cover them all."
There are two ways for oil and gas companies to grow, analysts say, either by drilling new wells and finding greater reserves, or by buying a company that already has them. Drilling is riskier because a million-dollar well may turn up empty. Because buying another company is usually safer, Wall Street so far has applauded consolidation efforts. "Wall Street likes predictability more than it likes the chance of dry holes," said John P. Herrlin Jr., global coordinator of research into exploration and production companies at Merrill Lynch.

Global Marine, of Houston, and Santa Fe, which is based in Dallas, have been discussing the possibility of a merger for about two years now, said Robert E. Rose, Global Marine's chairman and CEO. They wanted to configure a deal so it would be a merger of equals, but the share prices of the two companies have been too far apart until recently to proceed in such a way, Mr. Garber said.
Under the terms of the transaction, Global Marine stockholders would receive 0.665 share of the newly issued GlobalSanteFe stock for each share of Global Marine, which would ultimately give them a 50.6 % stake in the new company. Santa Fe shareholders will have a 49.4 % stake.
Santa Fe would end up paying an 18 % premium for the Global Marine shares, although it is the smaller company. Even in a merger of equals, one company, for accounting purposes, must be the buyer.
Mr. Rose will serve as chairman of the merged company, and Mr. Garber, as its president and CEO. The new concern will have its headquarters in Houston.

Although Santa Fe has some land-based drilling operations, the bread- and-butter for both companies is offshore drilling, and more recently, the expensive and technologically complex realm of deepwater exploration. The merger is expected to yield few cost savings, said Arvind Sanger, oil field services analyst at Deutsche Banc Alex. Brown. The new company will still lag behind the market leader, Transocean Sedco Forex, but its new strength will flow from its size.
Each company has 23 mobile offshore rigs used in shallower waters, and between them, they will have six semi-submersible rigs and four advanced drilling ships that can be used at depths exceeding 4,000 feet, Mr. Sanger said. Increasingly, the biggest oil and gas reservoirs being found are in the deep waters off West Africa, Brazil and in the Gulf of Mexico.
"This gives them a lot more flexibility in markets when at some point the Gulf of Mexico is hot," Mr. Sanger said, "or the North Sea is hot, or West Africa is hot, and they can move the assets to serve those markets."

Devon's acquisition of Anderson Exploration surprised analysts because of its suddenness in the wake of the Mitchell deal. Mr. Herrlin of Merrill Lynch said that while Devon has a good track record of smart acquisitions, two deals at once will be complicated and somewhat risky.
By purchasing Anderson Exploration, which has a market value of $ 2.24 bn, Devon has staked out a long-term position in the natural gas fields of the Canadian Arctic, said John Bailey, exploration and production analyst at Deutsche Banc Alex. Brown. Anderson has accumulated acreage in the rich fields of the Mackenzie River Delta of the Northwest Territories. Under the terms of the transaction, Devon will be paying a 51 % premium for shares ofAnderson.
Devon's purchase of Anderson continues a series of acquisitions by American companies of Canadian natural gas producers over the last year. In that period, Conoco has bought Gulf Canada Resources; Anadarko has acquired Berkley Petroleum, and the Williams Companies purchased Encal Energy.

With demand for natural gas growing in the United States, and Canada providing much of the fuel, the Americans are absorbing small and medium-size Canadian concerns with sizable gas holdings. "The bottom line is that this is a great frontier for natural gas drilling," Mr. Bailey said. "There's a lot of natural gas drilling in areas that haven't gotten a lot of attention so far from the industry."
Credit Suisse First Boston served as financial adviser and Shearman & Sterling provided legal counsel to Santa Fe. Morgan Stanley was financial adviser and Baker Botts provided legal counsel to Global Marine.

Source: The New York Times
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