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
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
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
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
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.