The latest buzz in the oil-patch and on Wall Street is thatindependent producer and marketer Noble Affiliates Inc. of Ardmore,OK, may acquire competitor Ocean Energy Inc. in a transaction thatwould catapult the combined company into the ranks of one of thetop natural gas producers in the United States.

There have been “very, very loud rumors” of a possible dealbetween the two independent oil and gas producers for about twoweeks, said Irene Haas, an E&P analyst with Sanders MorrisHarris in Houston. In fact, shares of Noble Affiliates andHouston-based Ocean Energy traded at new 52-week highs lastThursday and Friday, respectively, amid speculation of a pendingmarriage. By the end of the week, Ocean Energy stock was trading ataround $16 and Noble was hovering at the $40 mark.

At the same time, there was renewed speculation late last weekthat Texaco Inc. was being eyed as a takeover target by RoyalDutch/Shell Group and Chevron Corp. A rise in the White Plains,NY-based company’s stock, which was trading between $56 and $57 onFriday, and a marked increase in daily trading volumes fueled thereports.

Is there any basis for the scuttlebutt about Noble and OceanEnergy? Financial analysts who cover the companies concede theyhave no direct knowledge that a deal is imminent. “I haven’tconfirmed anything with the company [Ocean Energy]. Nothing’s adone deal until signatures are on paper……[But] I think whereverthere’s smoke there’s usually fire,” said Lewis Ropp, an energyanalyst for Dallas-based Frost Securities, which tracks OceanEnergy. “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 arumor,” said Ocean Energy spokeswoman Janice Aston White. She notedreports of a Noble-Ocean Energy union have been rampant for a”couple of weeks

A Noble-Ocean Energy company would provide “synergies and costsavings” of as much as $100 million for the two producers, Ropptold NGI. He noted that both Noble and Ocean Energy are significantgas producers, with gas accounting for about 70% of Noble’sproduction and 50% of Ocean Energy’s production. Also, theirE&P activities “overlap in core areas” — the Gulf of Mexico,West Africa and Israel.

Ropp believes a marriage with Noble Affiliates would appeal toOcean Energy, based on the interest that Ocean Energy showed whenAnadarko Petroleum Corp. announced plans to buy Union PacificResources. Ocean Energy was “very supportive of that” deal becauseit believes further consolidation of the production sector iswarranted to boost competition.

Also, Ropp noted Ocean Energy may view this opportunity asanother Seagull Energy, which it merged with in 1999. “I think thatthey could repeat that” success, he said. If Noble should make aplay for Ocean Energy, it would be the third merger transactionthat Ocean Energy’s been party to since 1998. First, it merged withUnited Meridian Corp. in March 1998, creating the ninth largestindependent producer based on total market capitalization. Then inearly 1999, it hooked up with independent producer Seagull Energy— a move that weighted the company more toward natural gas thancrude oil in terms of reserves and production.

Although she has no first-hand information on whether such adeal is in the offing, Sanders’ Haas believes the success of aNoble-Ocean Energy marriage will depend on how much Noble iswilling to pay for Ocean Energy. If Noble would overpay, it wouldbe dilutive to earnings, she cautioned.

What would be a fair price? “Anything not exceeding 0.5 share ofNoble [which is trading at roughly $40] for each share of OceanEnergy,” Haas said. “It could work under the right exchange ratio.”

If Noble Affiliates should acquire Ocean Energy, it would resultin a company with a market capitalization of slightly more than $5billion. The combined company “would be comparable in size toApache [Corp.],” Haas noted. A combined Noble-Ocean Energy companywould 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 andmarketing of oil and gas in the U.S., Canada and Africa. It justreported first-quarter net income of $26.8 million, or 48 cents ashare, on revenues of $271.7 million. This compares to a net lossof $8.9 million, or 16 cents a share, on revenues of $177.9 millionfor the same period in 1999.

Financial analysts expect good things for Noble Affiliates thisyear and next profit-wise. They project per-share earnings of $1.48in 2000 and $1.58 in 2001. This would represent an increase of71.5% over 1999’s earnings of 86 cents per share, and a furtherboost 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 $81million on revenues of $106 million for the first quarter of 1999.Last year’s first-quarter results were impacted by one-time chargesrelated to the company’s merger with Seagull Energy and the sale ofits Canadian subsidiary.

In the U.S., Ocean Energy’s E&P activities are focused onthe shelf and deepwater areas of the Gulf of Mexico, the PermianBasin, Mid-continent and Rocky Mountain regions. Like Noble, italso has operations in West Africa and a number of other foreigncountries.

Susan Parker

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