Norsk Hydro to merge oil and gas operations with Statoil

Dec 18, 2006 01:00 AM

Norsk Hydro said that the board of directors of Hydro and Statoil have agreed to recommend to their shareholders a merger of Hydro's oil and gas activities with Statoil, creating the world’s largest offshore operator with a strengthened platform for future growth.
Norsk Hydro said the new company will have a combined production of 1.9 mm bpd in 2007 and proven oil and gas reserves of 6.3 bn boe. Hydro will continue as a leading, focused global aluminium company.

"By combining forces, the new company will be a highly competent and financially strong Norwegian-based energy champion, well positioned to ensure continued domestic excellence and pursue international business opportunities for long-term growth," said Jan Reinaas and Jannik Lindbaek, chairmen of the board of directors of Hydro and Statoil, respectively.
"The industry faces an increasingly challenging international landscape. To merge now makes perfect sense."

Hydro's shareholders will hold 32.7 % and Statoil's shareholders will hold 67.3 % of the new company. Hydro's shareholders will receive 0.8622 shares in the new company for each Hydro share and continue as owners of Hydro.
Statoil shareholders will maintain their holdings in the new company on a one-for-one basis. The Norwegian State will hold around 62.5 % in the merged entity.

The proposed merger is subject to approval by the general meetings of the two companies as well as by regulatory authorities. The general meetings are expected to be held during second quarter 2007. Final closing is expected to be in the third quarter 2007.
In the meantime, Hydro and Statoil will be managed as separate companies. A new name for the merged company will be selected as part of the integration process.

The boards propose that Eivind Reiten will become Chairman of the Board of the new company while Helge Lund is proposed as President and Chief Executive Officer. The following corporate management board members have been appointed to key positions in the new company:
Eldar Saetre as chief financial officer, Tore Torvund as head of exploration and production Norway, Peter Mellbye as head of international exploration and production, Morten Ruud as head of projects, Margareth Oevrum as head of technology and new energy, Rune Bjoernson as head of natural gas, Jon Arnt Jacobsen as head of manufacturing and marketing and Hilde Merete Aasheim head of group functions.

The business address of the merged entity will be in Stavanger, Norway. Group functions will be located in both Stavanger and Oslo, and the CEO will operate out of both locations. Main business areas and operations will be managed from Bergen, Oslo and Stavanger. A dedicated team led by Hilde Merete Aasheim will be appointed to plan and execute an efficient integration process.
Following the transaction, the new company will employ 31,000 people, of which about 5,000 from Hydro's oil and energy business area, Hydro IS Partner and other personnel supporting Hydro's current oil and gas activities. Hydro's hydropower and solar activities will remain with Hydro, as will oil and energy projects personnel working on aluminium projects.

The recommended merger is driven by an ambition to grow in Norway and internationally. Personnel reductions in overlapping functions are expected to be limited and take place through internal replacement or natural turnover. The net interest-bearing debt of Hydro's oil and gas activities is assumed to be zero at the end of 2006.
Statoil's net interest-bearing debt is expected to be around NOK 14 bn at the end of 2006. Hydro will propose a dividend per share for 2006 of NOK 5, in total around NOK 6.1 bn, subject to approval by Hydro's annual general meeting scheduled for May 8, 2007.

This dividend is to be funded entirely by Hydro's oil and gas activities. Statoil will propose a dividend of NOK 9.12 per share for 2006, in total around NOK 19.7 bn, to its annual general meeting scheduled for May 15, 2007.
Hydro has repurchased 21.6 mm shares during 2006 in the market, corresponding to 96 % of the current buyback authorization. These shares and the corresponding part of the Norwegian state's 16.9 mm shares will be proposed cancelled at an extraordinary general meeting in the second quarter of 2007 that will also decide on the proposed merger. The redemption of the Norwegian state's shares is expected to amount to around NOK 2.7 bn. Hydro's remaining treasury shares won't be eligible for receiving shares in Statoil.

During 2006, Statoil has repurchased 5.9 mm shares in the market, corresponding to 11.7 % of the current buyback authorization. These shares and the corresponding part of the Norwegian state's 14.3 mm shares will be proposed cancelled at an extraordinary general meeting in the second quarter next year that will also decide on the merger. Neither Hydro nor Statoil will undertake any further share buybacks until the transaction is closed in the autumn of 2007.
After the transaction, the merged company will have 3.19 bn shares outstanding, and Hydro will have1.21 bn shares outstanding and 38.7 mm treasury shares. It is the combined company's ambition to grow the ordinary cash dividend measured in NOK per share.

Furthermore, it is the combined company's intention to return to its shareholders, through cash dividends and share repurchases, an amount in the range of 45 % to 50 % of consolidated net income as determined in accordance with US accounting rules.
In any one year, however, the aggregate of the cash dividends and share repurchases may be higher or lower than 45 % to 50 % of net income, depending on Statoil's evaluation of expected cash flow development, capital expenditure plans, financing requirements and appropriate financial flexibility.

Hydro said it will be the world's third-largest listed aluminium company following the completion of the recommended merger and is expected to be the fourth-largest company listed on the Oslo stock exchange in terms of market capitalization. The company said its upstream aluminium activities, aluminium metal, will deliver strong results in 2006 and profitability in aluminium products has improved.
Hydro is the second-largest producer of hydropower in Norway. The company said that this is an asset that will be an important part of Hydro going forward, leveraging a strong, captive power portfolio in Norway and taking competence abroad Hydro will continue to focus on its high performing primary production system and well-developed casthouse and resmelter system in Europe and in the US.

Hydro also said that it will pursue new aluminium and metal growth opportunities in attractive areas. The third expansion of the Alunorte aluminium refinery in Brazil strengthens its position as the global leading aluminium refinery. The planned giant metal smelter in Qatar, a 50:50 joint venture between Hydro and Qatar Petroleum, is progressing according to plan, the company said.
The ongoing restructuring of the downstream aluminium portfolio is expected to be completed in 2007. Hydro has some of the most cost-efficient rolled products assets in Europe and key positions in global markets for lithographic sheet and aseptic foil. The company also has a focused extrusion business built on strong brands and proximity to the customer. It is the largest supplier of aluminium building systems in Europe.

In addition to core activities, Hydro's other businesses will remain within Hydro as will Hydro's engagement in the solar energy industry. Hydro will continue with a strong financial position. Net interest-bearing debt is expected to be approximately NOK 4 bn at the end of this year.
Hydro's debenture bonds will as part of the transaction follow the oil and gas activities. To balance the net interest bearing debt to zero, a cash amount equal to the bonds will be transferred at closing. Proposed dividend for 2006 is NOK 5 per share, totalling NOK 6.1 bn, which will be funded by Hydro's oil and gas activity. Hydro said that it expects to continue its current dividend policy with a payout ratio of 30 % of net earnings over the cycle.

Source: Dow Jones Newswires
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