Two Tulsa-based independents, Unit Corp. and PetroCorp, agreed to merge last week in a combination stock-and-cash deal valued at $190 million. In the transaction, the gas-heavy Unit will acquire PetroCorp’s 55 Bcfe of proved reserves using two million of its shares and cash on hand.

The transaction, which is subject to typical closing conditions, is expected to be immediately accretive to Unit’s earnings and cash flow per share. Unit’s allocation of the purchase price is approximately $101 million to working capital, $78 million to proved reserves and the remaining $11 million to undeveloped leasehold and partnership interest.

PetroCorp, which began investigating a possible sale or merger last year, has focused its operations on exploring and developing oil and natural gas properties primarily in Texas and Oklahoma. Among the 11 wells in which the company participated during 2002, it drilled a 100% working interest, 7,800-foot Miocene gas well near Matagorda Island and completed and put on production a 3 MMcf/d well in the Alta Loma field near Galveston.

In 2001, PetroCorp increased its proved reserve base by approximately 80% through the acquisition of Southern Mineral Corp. By 2002, however, unable to acquire additional reserves, PetroCorp began to investigate sales and merger options, and by the fourth quarter of last year, the company had divested approximately 50% of its oil and gas assets.

Gary Christopher, CEO of PetroCorp, called the transaction a “final step in the company’s plan to return maximum value to our shareholders,” adding that “the combination of cash and stock is particularly attractive. This structure returns the majority of value to our shareholders in cash while allowing them to participate in a growing energy company, Unit Corp.”

Just last month, King Kirchner, Unit’s founder and long-time chairman, announced his retirement, effective Aug. 1. He had stepped down from the CEO role two years ago, and John G. Nikkel had succeeded him (see NGI, May 21, 2001). Nikkel will assume the chairman’s duties upon Kirchner’s retirement.

Unit, which was created in 1979 with an initial reserve base of 2 Bcfe, owned 269.4 Bcfe of reserves as of Dec. 31, 2002. Its reserves are primarily located in the Anadarko and Arkoma basins, and it operates or owns an interest in more than 3,000 wells. For the past 19 years, Unit has replaced at least 150% of its production, comprised of 90% natural gas and 66% proved developed reserves. Before the PetroCorp merger, Unit had an inventory of more than 380 drilling locations representing 200 Bcfe of unrisked reserves.

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