In a deal that Williams CEO Keith Bailey called “one of the best acquisitions” his company has ever made, the Houston-based pipeline operator/energy marketer snatched Barrett Resources Corp. from Royal Dutch/Shell Group’s mighty grasp on Monday for nearly $2.5 billion, beating back a hostile takeover attempt. Shell said it would not challenge the deal.

Tulsa-based Williams, better known as one of the largest natural gas pipeline companies in the United States, worked out a cash and stock deal that will pay Barrett $73 a share for 50% of its stock, and then swap the remaining shares for 1.767 shares of Williams. It also will assume about $300 million of Barrett’s debt. The cash portion is about 8.5% more than Barrett’s closing stock price of $67.30 on Friday. Shell’s highest offer was $60 per share.

With its current reserve total of about 1.2 Tcf, the Barrett deal nearly triples Williams’ reserves and as important, gives it a secure natural gas supply for its booming trading arm.

In a conference call with investors on Monday, Bailey and Barrett CEO Peter Dea called the new partnership a success for shareholders, employees and customers. Barrett had been actively seeking a friendly buyer since Shell first announced its takeover (see Daily GPI, March 8, March 12, April 27).

“We are very excited to have accomplished this extremely successful transaction,” Dea said. “We are at the forefront of natural gas production and lie in some of the largest and least explored gas basins in the United States.”

As of April 30, Denver-based Barrett’s reserves totaled 2.1 Tcfe, 50% more than its total reserves as of Dec. 31, 2000. A review by independent reservoir engineers raised the company’s reserves to 2.1 Tcfe, of which 96% is natural gas, up from an estimate of 1.37 Tcfe. The reserve projection followed a favorable ruling by the Colorado Oil and Gas Conservation Commission in April (see Daily GPI, April 26).

“This is an exciting day for Williams,” Bailey said yesterday. Calling the deal an “ideal fit,” he said Williams was “acquiring a group of talented people and we will reinforce our business west of the Rockies.” As a major gas gatherer and processor, Bailey said the merger will give Williams “major opportunities” to expand its natural gas pipeline and natural gas liquids pipeline business. “It’s an opportunity to reinforce growth.”

Bailey said a “particularly attractive aspect” of Barrett’s assets, which are centered in the Wind River Valley, are that its reserves are long lived, with “very good probable opportunities and long-term, steady growth.”

Sanders Morris Harris analyst Irene Haas, who follows Barrett, called the acquisition a win-win deal. For Williams, Haas said the deal would give it “more pipeline assets on the gas side. It’s a big positive.” Barrett, she said, had done an “excellent job” of extracting value for its shareholders.

“Williams is huge in marketing, and Barrett has recently raised its proved reserves,” she said. “You can read between the lines. This is a real winning team.” She said Barrett’s executive team was a “seasoned and experienced crew” that had been working in the Rockies for a long time.

Bailey said that most of Barrett’s 237 employees would be kept, as well as its Denver headquarters, which will become Williams’ principal office for Rocky Mountain exploration and production. The agreement includes a termination fee of $75.5 million and reimbursement expenses to Williams of up to $15 million if Barrett changes its mind. Following approval from antitrust regulators, the agreement could be completed within 60 to 90 days.

Williams’ coup marks the second takeover defeat by Shell in less than a month. In late April, the Australian government blocked the oil giant’s $5.1 billion unsolicited bid for Woodside Petroleum Ltd., citing its concerns about “national interest.”

In a statement Monday, Walter van de Vijver, CEO of Shell Exploration and Production Co., said “Barrett’s assets and employees combined with Shell’s financial and technological strengths would have been an excellent fit for all involved, but only at the right price. We have no intention of abandoning our economic discipline and pursuing an acquisition at price levels that cease to add value for our shareholders just for the sake of making a deal.”

However, van de Vijver did not say Shell was giving up at acquiring something else in North America. “We will continue to pursue attractive opportunities for growth, with particular emphasis on natural gas production and reserves. We see the need for superior application of technology to enable industry to successfully address the growing demand for natural gas in the U.S.”

Analyst Haas said she was hesitant about what companies Shell might pursue now but added that she expects the cash-rich conglomerate to already be stalking another target.

“They have the appetite and the cash for it, and they want natural gas,” Haas said. She speculated that one possible target could be another Denver-based company, Western Gas Resources, an independent that has partnered with Barrett on several Rocky Mountain deals. It also has set records for its growth in the past year (see Daily GPI, Feb. 15).

“WGR would be an obvious target,” Haas said. A larger, more attractive target, she said, would be Oklahoma City-based Devon Energy Corp., which ironically, was considering a friendly agreement with Barrett last week (see Daily GPI, May 4). About 75% of its reserves are in North America within five operating divisions.

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