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 yesterday. The $3.6 billion transactionis expected to close within the next few weeks, the companies said.
“This strategic acquisition not only immediately increases ourearnings per share and cash flow, but will do so over a range ofenergy prices,” said Ray R. Irani, Occidental’s chairman.
Although Altura is the largest oil producer in Texas andaveraged 108,000 b/d of oil production in 1999, it also hassignificant gas assets, producing 18,000 b/d of NGLs and 124 MMcf/dlast year as well. Overall, Altura has 335 Bcf of proved gasreserves.
About 85% of Altura’s production is in western and southwesternTexas. Altura’s proved reserves are made up almost entirely of oiland gas liquids. One-half of those reserves are in the Wasson andSlaughter/Levelland fields in Texas. The company employs 800people.
The move made sense strategically, Oxy told the financialcommunity after the purchase was made, because adding Altura willincrease the company’s proved reserves by 63%, complement Oxy’sexisting Permian Basin operations and add to its Elk Hills andHugoton assets. “Significant natural gas opportunities have beenoverlooked,” Oxy told analysts.
Oxy will invest $1.2 billion to acquire common equity in thepartnership and become the managing general partner controlling100% of the assets. The partnership will borrow $2.4 billion, whichwill be recourse only to these assets. The sellers, BP Amoco andShell, will retain a limited preferred interest in the partnershipand issue $2 billion in long-term notes to the partnership thatwill provide additional credit support.
“Creative, non-recourse project financing of this acquisitionassures that we can accomplish our primary objective of achievingsignificant earnings growth and enhanced shareholder value withoutissuing stock or entering the long-term debt markets. Accordingly,we expect to maintain our investment grade credit ratings,” saidIrani.
Yesterday’s agreement sheds light on Oxy’s recently announced saleof its stake in the Canadian producer CanOxy for US$700 million (seeDaily GPI, March 2). Of Occidental’s40.2 million CanOxy shares, 20.2 million will be sold to the OntarioTeachers Pension Plan Board. The remaining 20 million will be sold toCanOxy. Irani said proceeds from the CanOxy sale would be put towardthe Altura purchase.
“…The recently announced sale of our equity interest inCanadian Occidental Petroleum for $700 million in net after-taxproceeds already has raised nearly 60% of $1.2 billion we willinvest in Altura. The remaining $500 million will be funded by thesale of various non-strategic assets before year end.”
The purchase came as no surprise to the industry. Shell said ithad been looking to sell its 36% share since December. “[Thisagreement] brings to a successful conclusion our commitment made inDecember 1998, wherein we announced our intent to sell our interestin Altura,” said Walter van de Vijver, Shell Exploration &Production Company’s president.
One reason that Shell and BP Amoco may have been eager to sellAltura is that the company had been experiencing a 5% decline inproduction recently. Oxy said it was confident it could halt thedecline by applying its Permian Basin drilling methods to theAltura properties
The move adds even more to Oxy’s enormous production operations.Its worldwide 1999 production averaged 425,000 boe/d, including306,000 barrels of liquids and 714 MMcf/d of gas. Proved reservesat year-end 1999 were 1.35 billion boe comprised of 1,037 millionbarrels of liquids and 1,892 Bcf.
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