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Merger of Statoil, Hydro to Plant Large GOM Footprint

The merger of Norway's Statoil ASA and Norsk Hydro ASA will create not only the world's largest offshore oil and gas company, but an acquisitive-minded player that is expected to wield a much bigger stick in developing the deepwater Gulf of Mexico (GOM), analysts said Monday. In the past two years, the companies have spent a total of about $6 billion buying GOM assets.

The proposed transaction, which involves a $30 billion share swap, will create an oil major with a market capitalization estimated at more than $80 billion, placing it in fourth place among European producers Royal Dutch Shell plc, BP plc, Total SA and Eni Spa. Irving, TX-based ExxonMobil Corp. remains the top oil major in the world. The combined company, as yet unnamed, would have 2007 estimated production of 1.9 MMboe/d and proved reserves estimated at 6.3 billion boe.

Statoil's shareholders would own 67.3% of the merged company, and Hydro shareholders would own 32.7%. The Norwegian government, which now owns 71% of Statoil and 44% of Hydro, would own 62.5% of the combined company. It said Monday it wants to increase its stake to 67% in the merger. Closing is expected in 3Q2007.

Together, the producers have a footprint in 40 countries, and they both have a reputation for using cutting-edge offshore technology. Combined, the new company would easily eclipse any other global offshore operator, almost double the size of second-place offshore operator Shell and well ahead of Brazil's Petrobras, which would be in third place in the offshore. Analysts said their combination would give them considerable power to continue to grow.

"We see them as an acquirer" in the GOM, said Wood Mackenzie energy consultant Derek Butter.

Statoil CEO Helge Lund, who has been named CEO of the combined company, said during a press conference that the new company would be "active in frontier exploration," with a "stronger, global [exploration and production] E&P presence."

In the GOM, the merger would be "a perfect match," offering a "balanced and material position with the potential to deliver significant future growth." Lund said management expects to have "significant near-term growth from new deepwater developments" in the GOM, and be "well positioned" with several recent discoveries and purchases.

"We will have a top 10 exploration portfolio" in the GOM, said Lund, "with strong lease and seismic position."

Separately, Statoil and Hydro are formidable operators in the GOM offshore, with sizable stakes in some major projects now under development: Tahiti, Thunder Hawk and the Independence Hub ventures.

Statoil bought its stake in the Tahiti field from EnCana Corp. in 2005 (see Daily GPI, April 29, 2005). Statoil and partners Chevron (58%) and Shell (17%) are building an offshore facility with production capacity of 125,000 b/d of oil and 70 MMcf/d of natural gas. The spar hull is expected to be delivered to the GOM in mid-2007, with topsides fabrication to be completed around the same time.

Hydro made a big splash into the U.S. offshore when it purchased Spinnaker Exploration Co. in 2005 (see Daily GPI, Sept. 20, 2005). Spinnaker had about 373 Bcfe of proved reserves, with most of them in the GOM, and it had more than 22,800 blocks of mostly contiguous GOM 3-D seismic data. Among other things, Hydro obtained stakes in the Thunder Hawk field and the Independence Hub, along with interest in leaseholds in the Spiderman, San Jacinto and Q projects under development in the Eastern GOM. The Independence Hub, the world's deepest platform, will be located in Mississippi Canyon Block 920, just inside the eastern boundary of the Central GOM planning area (see Daily GPI, Oct. 23). Operated by Anadarko, the hub will pipe up to 1 Bcf/d of gas to U.S. markets beginning in 2007 .

The new company also would have a substantial portfolio of GOM projects to tap for the future. In September, Statoil acquired ownership in two discoveries, Big Foot and Caesar, and one exploration prospect, Big Foot North, from Plains Exploration & Production Co. (PXD) (see Daily GPI, Sept, 19). The assets are located in the Greater Tahiti area and include a 17.5% stake in the Caesar discovery, operated by Shell.

The PXD deal also gave Statoil a 12.5% stake in the Chevron-operated Big Foot discovery. Caesar is located between the Chevron-operated Tahiti and Tonga discoveries, two assets in which Statoil owns a 25% stake. Tahiti is expected to come on stream in 2008; Caesar will ramp up in 2010 or 2011. The Big Foot discovery lies in the Walker Ridge area close to the Jack and St. Malo discoveries operated by Chevron. In November, Statoil upped its stake in Big Foot, buying Anadarko's 15% interest (see Daily GPI, Nov. 7). Statoil also obtained deepwater stakes in Knotty Head (25%), as well as a 15% interest in the Big Foot North prospect.

In addition, Statoil owns a 25% stake in the deepwater Jack discovery with partners Chevron Corp. (50%) and Devon Energy Corp. (25%). The three producers in September completed the deepest extended drill stem test in history, with a successful production test on the Jack No. 2 well at Walker Ridge Block 758 in the Lower Tertiary (see Daily GPI, Sept. 6).

The combined company also would carry a growing presence onshore in the United States. Statoil affiliate Statoil Natural Gas LLC entered the U.S. gas market with the reopening of the Cove Point Terminal near Baltimore (see Daily GPI, Nov. 1, 2002). Statoil Natural Gas holds one-third of the capacity rights at the liquefied natural gas regasification terminal.

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