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Oxy's Altura Deal has Strong Gas Implications

March 13, 2000
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Oxy's Altura Deal has Strong Gas Implications

In a move rumored for the past few months, Occidental Petroleum (Oxy) took Altura Energy off the hands of Shell Exploration & Production Co. and BP Amoco last week. The $3.6 billion transaction is expected to close within the next few weeks, the companies said.

"This strategic acquisition not only immediately increases our earnings per share and cash flow, but will do so over a range of energy prices," said Ray R. Irani, Occidental's chairman.

Although Altura is the largest oil producer in Texas and averaged 108,000 b/d of oil production in 1999, it also has significant gas assets, producing 18,000 b/d of NGLs and 124 MMcf/d last year as well. Overall, Altura has 335 Bcf of proved gas reserves.

About 85% of Altura's production is in western and southwestern Texas. Altura's proved reserves are made up almost entirely of oil and gas liquids. One-half of those reserves are in the Wasson and Slaughter/Levelland fields in Texas. The company employs 800 people.

The move made sense strategically, Oxy told the financial community after the purchase was made, because adding Altura will increase the company's proved reserves by 63%, complement Oxy's existing Permian Basin operations and add to its Elk Hills and Hugoton assets. "Significant natural gas opportunities have been overlooked," Oxy told analysts.

Oxy will invest $1.2 billion to acquire common equity in the partnership and become the managing general partner controlling 100% of the assets. The partnership will borrow $2.4 billion, which will be recourse only to these assets. The sellers, BP Amoco and Shell, will retain a limited preferred interest in the partnership and issue $2 billion in long-term notes to the partnership that will provide additional credit support.

"Creative, non-recourse project financing of this acquisition assures that we can accomplish our primary objective of achieving significant earnings growth and enhanced shareholder value without issuing stock or entering the long-term debt markets. Accordingly, we expect to maintain our investment grade credit ratings," said Irani.

Yesterday's agreement sheds light on Oxy's recently announced sale of its stake in the Canadian producer CanOxy for US$700 million (see Daily GPI, March 2). Of Occidental's 40.2 million CanOxy shares, 20.2 million will be sold to the Ontario Teachers Pension Plan Board. The remaining 20 million will be sold to CanOxy. Irani said proceeds from the CanOxy sale would be put toward the Altura purchase.

"...The recently announced sale of our equity interest in Canadian Occidental Petroleum for $700 million in net after-tax proceeds already has raised nearly 60% of $1.2 billion we will invest in Altura. The remaining $500 million will be funded by the sale of various non-strategic assets before year end."

The purchase came as no surprise to the industry. Shell said it had been looking to sell its 36% share for more than a year. "[This agreement] brings to a successful conclusion our commitment made in December 1998, wherein we announced our intent to sell our interest in Altura," said Walter van de Vijver, Shell Exploration & Production Company's president.

One reason that Shell and BP Amoco may have been eager to sell Altura is that the company had been experiencing a 5% decline in production recently. Oxy said it was confident it could halt the decline by applying its Permian Basin drilling methods to the Altura properties.

The move adds even more to Oxy's enormous production operations. Its worldwide 1999 production averaged 425,000 boe/d, including 306,000 barrels of liquids and 714 MMcf/d of gas. Proved reserves at year-end 1999 were 1.35 billion boe comprised of 1,037 million barrels of liquids and 1,892 Bcf.

John Norris

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