Industry Buzzes About Possible Noble, Ocean Energy Union
The latest buzz in the oil-patch and on Wall Street is that
independent producer and marketer Noble Affiliates Inc. of Ardmore,
OK, may acquire competitor Ocean Energy Inc. in a transaction that
would catapult the combined company into the ranks of one of the
top natural gas producers in the United States.
There have been "very, very loud rumors" of a possible deal
between the two independent oil and gas producers for about two
weeks, said Irene Haas, an E&P analyst with Sanders Morris
Harris in Houston. In fact, shares of Noble Affiliates and
Houston-based Ocean Energy traded at new 52-week highs last
Thursday and Friday, respectively, amid speculation of a pending
marriage. By the end of the week, Ocean Energy stock was trading at
around $16 and Noble was hovering at the $40 mark.
At the same time, there was renewed speculation late last week
that Texaco Inc. was being eyed as a takeover target by Royal
Dutch/Shell Group and Chevron Corp. A rise in the White Plains,
NY-based company's stock, which was trading between $56 and $57 on
Friday, and a marked increase in daily trading volumes fueled the
Is there any basis for the scuttlebutt about Noble and Ocean
Energy? Financial analysts who cover the companies concede they
have no direct knowledge that a deal is imminent. "I haven't
confirmed anything with the company [Ocean Energy]. Nothing's a
done deal until signatures are on paper......[But] I think wherever
there's smoke there's usually fire," said Lewis Ropp, an energy
analyst for Dallas-based Frost Securities, which tracks Ocean
Energy. "I wouldn't be surprised to hear something very shortly.
There probably are serious discussions taking place now."
The companies won't confirm anything. "We can't comment on a
rumor," said Ocean Energy spokeswoman Janice Aston White. She noted
reports of a Noble-Ocean Energy union have been rampant for a
"couple of weeks
A Noble-Ocean Energy company would provide "synergies and cost
savings" of as much as $100 million for the two producers, Ropp
told NGI. He noted that both Noble and Ocean Energy are significant
gas producers, with gas accounting for about 70% of Noble's
production and 50% of Ocean Energy's production. Also, their
E&P activities "overlap in core areas" --- the Gulf of Mexico,
West Africa and Israel.
Ropp believes a marriage with Noble Affiliates would appeal to
Ocean Energy, based on the interest that Ocean Energy showed when
Anadarko Petroleum Corp. announced plans to buy Union Pacific
Resources. Ocean Energy was "very supportive of that" deal because
it believes further consolidation of the production sector is
warranted to boost competition.
Also, Ropp noted Ocean Energy may view this opportunity as
another Seagull Energy, which it merged with in 1999. "I think that
they could repeat that" success, he said. If Noble should make a
play for Ocean Energy, it would be the third merger transaction
that Ocean Energy's been party to since 1998. First, it merged with
United Meridian Corp. in March 1998, creating the ninth largest
independent producer based on total market capitalization. Then in
early 1999, it hooked up with independent producer Seagull Energy
--- a move that weighted the company more toward natural gas than
crude oil in terms of reserves and production.
Although she has no first-hand information on whether such a
deal is in the offing, Sanders' Haas believes the success of a
Noble-Ocean Energy marriage will depend on how much Noble is
willing to pay for Ocean Energy. If Noble would overpay, it would
be dilutive to earnings, she cautioned.
What would be a fair price? "Anything not exceeding 0.5 share of
Noble [which is trading at roughly $40] for each share of Ocean
Energy," Haas said. "It could work under the right exchange ratio."
If Noble Affiliates should acquire Ocean Energy, it would result
in a company with a market capitalization of slightly more than $5
billion. The combined company "would be comparable in size to
Apache [Corp.]," Haas noted. A combined Noble-Ocean Energy company
would be roughly 60% natural gas production, would have a "decent"
balance sheet, and would have a "lean" cost structure.
Noble Affiliates is engaged in the exploration, production and
marketing of oil and gas in the U.S., Canada and Africa. It just
reported first-quarter net income of $26.8 million, or 48 cents a
share, on revenues of $271.7 million. This compares to a net loss
of $8.9 million, or 16 cents a share, on revenues of $177.9 million
for the same period in 1999.
Financial analysts expect good things for Noble Affiliates this
year and next profit-wise. They project per-share earnings of $1.48
in 2000 and $1.58 in 2001. This would represent an increase of
71.5% over 1999's earnings of 86 cents per share, and a further
boost of 6.8% in 2001.
Ocean Energy also reported better results for the first quarter.
It had income of $43 million, or 25 cents per fully diluted share,
on revenues of $246 million. This compares to a net loss of $81
million on revenues of $106 million for the first quarter of 1999.
Last year's first-quarter results were impacted by one-time charges
related to the company's merger with Seagull Energy and the sale of
its Canadian subsidiary.
In the U.S., Ocean Energy's E&P activities are focused on
the shelf and deepwater areas of the Gulf of Mexico, the Permian
Basin, Mid-continent and Rocky Mountain regions. Like Noble, it
also has operations in West Africa and a number of other foreign