Equitable Resources ascended to the throne of Appalachian basinproducers yesterday by agreeing to purchase all of Statoil Energy’sassets in the region for $630 million. The deal is expected to becompleted next month, Statoil said.

The purchase combines Pittsburgh, PA-based Equitable’s 930 Bcfeof reserves and 6,100 wells with Statoil’s 1.1 Tcf of reserves and6,500 wells. Statoil is currently the largest reserve holder in theAppalachian basin. The wells are located in Kentucky, WestVirginia, Pennsylvania and Ohio.

“In addition to the complementary nature of the properties, thisis an extremely well-run company with low-cost operations,excellent existing production and significant upside through a highquality drilling inventory and land position,” said Murry S.Gerber, Equitable’s CEO. “Appalachian Basin drilling is extremelylow-risk and both Statoil and Equitable routinely approach a 100%success rate. Consequently, this transaction helps us to achieveseveral goals, including increasing our revenue and net incomegrowth while improving our return on total capital.”

Gerber added that Equitable intends to retain only the higherreturning assets and divest those with high cost and low returns.The purchase was funded through a combination of debt financing andasset sales derived from high-grading its production portfolio.

Columbia Natural Resources (CNR), Columbia Energy Group’sexploration and production arm, is now the second largest reserveholder with 844 Bcfe and 7,700 production wells. CNR had no commenton the transaction, said Larry Malone, a Columbia spokesman.

Ron Barone, an analyst with PaineWebber, said his companydecided to upgrade its rating of Equitable stock from neutral toattractive because of the move. PaineWebber’s 2000 earningsestimate for the company jumped from $2.40 to $2.50, despite theacknowledgement of warmer-than-normal weather.

“With the majority of the assets located in areas in whichEquitable is currently operating, the acquisition is highlycomplementary to its existing operations, providing significanteconomies of scale,” Barone said in a report. “With a now doublingof its Northeast E&P asset portfolio, Equitable’s managementwill rapidly rationalize this operation, developing those higherreturn areas and disposing of lower quality operations andaggressively drilling to ramp up production.”

The sale is not a surprise move by Statoil Energy. Its parentgroup, the Norwegian government-owned Statoil Group, put the entirecompany on the auction block last October (see Daily GPI, Oct. 14). Statoil Energy’s remainingbusinesses — power generation, energy marketing and trading — willbe offered for sale in a separate process starting later this monththe company said.

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