Enron Still May Sell EOG Interest
An April 2 filing with the Securities and Exchange Commission suggests
the rumored sale of Enron's controlling interest in Enron Oil &Gas
(EOG) could be in the offing. In the filing, Enron confirmed it is pondering
a potential sale of its exploration and production arm among other possibilities.
Edward Jones analyst Zach Wagner follows Enron and said he thinks the
company will be letting go of EOG within the next year "contingent
on them receiving a fair price for it. I don't think they're in the exploration
and production business in the long term." Potential buyers in Wagner's
view include Burlington Resources and Occidental Petroleum. "There
are some people like that who would certainly be interested, I assume,
but there are always surprises out there as well. It's a great company.
It's very well run. It's got a very gassy portfolio, so it hasn't been
hurt nearly as bad as companies that have more oil properties."
Enron Oil &Gas closed up 1/8 Friday at 16 3/8. The stock's 52-week
range is 11 _ to 24 «. Friday's volume was slightly more than half
Following Enron's receipt of a proposal from a third party to acquire
EOG, a special committee was formed to determine the proposal's fairness.
"Enron has been informed that the special committee's financial advisors
have invited certain other third parties to review confidential information
about the issuer and have solicited indications of interest from those
third parties with respect to one or more possible alternative transactions
to the proposal," the Enron filing says.
The filing says the committee has told Enron it is willing to consider
alternatives to the third party proposal but has said it is not willing
to recommend the proposal. "In light of the special committee's response,
Enron has been meeting with its legal and financial advisors in order to
determine whether the proposal can be modified in a way that, taking into
account tax and other structural matters, would be acceptable to Enron."
The company declined to comment further on the filing, which also makes
clear a transaction may not happen at all.
In December Enron made an SC13D filing with the SEC stating it received
an unsolicited offer for its 53.5% share of EOG, one of the largest independent
gas producers in the U.S. (see NGI Dec. 21, 1998).
According to the solicitation, the unnamed third party would acquire Enron's
shares in EOG and make an offer for all the outstanding shares. The third
party also would require that Enron dispose of certain other assets.
Enron formed EOG in 1987 from its existing InterNorth and Houston Natural
Gas units. It maintained full ownership until 1989 when it spun off a portion
to the public to raise $200 million. EOG explores for and produces oil
and gas in the United States, Canada, Trinidad and India. About 69% of
its reserves are in North America while the rest are overseas.
Enron has plenty of things it could do with the proceeds of an EOG sale,
Wagner said. The wholesale side of Enron's business, which includes marketing
and trading, as well as international projects, is in expansion and could
use the cash. Also, Enron's nascent water business, Azurix, which recently
filed for an initial public offering, could benefit from a cash infusion,
While selling EOG would deny Enron participation in a commodity price
recovery, Wagner noted Enron has been hedging the majority of its EOG commodity
price exposure. "They really haven't been taking a position in oil
and gas prices.. You have to ask, why own exploration and production if
you're not going to have exposure to it."
Joe Fisher, Houston