Ocean Energy and United Meridian propose merger

United Meridian Corp said it would fight any take-over proposal from a third party because its proposed merger with Ocean Energy would create better long-term shareholder value.
The merged company will be called Ocean Energy. Asked by one shareholder whether the merger was not simply a transfer of value from UMC to Ocean shareholders, UMC's chief executive John Brock told that the merger was key to ensuring both companies had the financial might to develop large scale projects in the deepwater Gulf of Mexico and West Africa. "We do not think that a premium to the market would reflect long-term value for shareholders to realise,'' Brock said.
Under the terms of the deal, the merged company will be 46.4 % owned by UMC shareholders and 53.6 % owned by Ocean shareholders in a tax free pooling of interest. The new company will have 100 million shares outstanding and a pro-forma market capitalisation of $ 3.1 billion.
Both companies said that without the merger they would not have had sufficient capital to develop substantial new discoveries in the deepwater Gulf of Mexico and deepwater West Africa.
The deal would for example allow the two to enter a long-term contract for a semisubmersible drilling rig which they could switch between the Gulf and West Africa, the companies said.
UMC said that it expected to announce two new production sharing contracts in West Africa in the next 30 days. Those coupled with their Gulf of Mexico holdings would have the equivalent of 800 Gulf of Mexico blocks in the "two hottest deepwater plays in the world,'' the company said.
Jim Flores, who will be chief executive of the new company said that one more big discovery in West Africa for UMC would have resulted in them diluting their interest, while the same would have applied to the old Ocean Energy in the Gulf of Mexico.
"Clearly our financial flexibility is increased by this deal,'' said UMC's Brock, who will become chairman of the board of the new company.
The two companies said they plan capital spending of $ 575-$ 600 mm in 1998 and expect to exit 1997 with combined annual output of 116,000 barrels of oil equivalent per day, a 25-30 % rise in combined average daily production for 1997.
The combined capital budget will be $ 100 mm less than had been planned by the two companies alone.
The two will drill 140 exploratory wells next year and 280 development wells.