Energy, Energy Service, Natural Gas & Oil Sectors: Devon to buy Anderson Exploration

This archived discussion is "read only".
For the corresponding "live" discussions, post in the active topic forum here.

Top 1. Sep 4, 2001 12:39 AM

» JenL_2 - Devon to buy Anderson Exploration

Looks like Devon is gulping another one. This from 9/4 WSJ:

Devon to Buy Anderson Exploration, Creating Top Natural-Gas Producer

By ROBIN SIDEL and CHIP CUMMINS

Devon Energy Corp. (DVN) agreed to buy Canadian natural-gas producer Anderson Exploration Ltd. (AXN) for $3.4 billion, in a move that would make Devon the largest independent producer of oil and gas in North America, company executives said.

The deal, the latest in a string of acquisitions for the fast-growing Oklahoma City energy company, includes the assumption by Devon of $1.2 billion of Anderson debt. It comes three weeks after Devon agreed to acquire Mitchell Energy & Development Corp. (MND), of The Woodlands, Texas, for $3.1 billion in cash and stock.

Anderson, of Calgary, Alberta, also has participated in the industry's recent rash of mergers, having acquired Canadian rival Numac Energy Co. earlier this year.

A formal announcement is expected Tuesday.

The transaction values Anderson at $25.80 a share, equivalent to 40 Canadian dollars a share and representing a 51% premium to Anderson's price of $17.07, down 13 cents, at 4 p.m. Friday in New York Stock Exchange composite trading. Anderson shares also trade in Toronto, where they were down 29 Canadian cents at C$26.40 on Friday.

At 4 p.m. Friday in American Stock Exchange composite trading, Devon shares were down 72 cents to $46.27. The U.S. and Canadian markets were closed Monday for Labor Day.

With this transaction, Devon is targeting the vast undeveloped reserves of western and northern Canada. About 32% of the company's reserves would be in Canada after the deal, compared with just 11% today. Devon would continue to have about two-thirds of its assets in natural gas and the balance in oil and natural-gas liquids.

"The U.S. simply does not have as many unexplored areas as Canada does, especially for natural gas," J. Larry Nichols, Devon's chairman and chief executive, said in an interview.

Anderson was founded in 1968 by current Chairman and Chief Executive J.C. Anderson, who is 70 years old. Mr. Anderson wouldn't play a role in the merged company.

Boosting Proved Reserves

Anderson has estimated proved reserves of 532 million barrels of oil equivalent and about eight million undeveloped acres. Included in the purchase price is a payment by Devon of $680 million for the undeveloped acreage and seismic exploration data.

The transaction would increase Devon's proved reserves by 35%, to about two billion barrels of oil equivalent, with 87% of these reserves located in North America. Devon's North American natural-gas production would rise to 2.2 billion cubic feet per day from its current 1.6 billion, making it the largest independent producer of natural gas in North America.

Devon's liquids production in North America would grow to about 180,000 barrels per day from 125,000, making it also North America's largest independent producer of oil and natural-gas liquids.

Big Bite

It is a big bite for Devon, which would see its debt-to-capital ratio jump to 60% from 28%. The company is hoping to reduce that fairly quickly, in part by selling about $1 billion of noncore assets. It plans to finance the Anderson deal and the cash portion of the Mitchell transaction with a five-year, $6 billion loan, and by issuing long-term debt.

Devon has a solid standing as one of the country's super-independents, with sizeable assets at home and overseas, including West Africa and Azerbaijan. But the Anderson transaction underscores Devon's still-unshaken faith in domestic natural-gas production, even as prices of that commodity have fallen sharply. Other peer companies, most notably Anadarko Petroleum Corp. and Apache Corp., increasingly have looked overseas to capture growth potential amid still-robust international oil markets.

After the Anderson and Mitchell acquisitions, Devon would become one of the largest U.S. producers of natural gas, behind only super-majors BP PLC and Exxon Mobil Corp., and the combined production of Texaco Inc. and Chevron Corp., which have agreed to merge. The combined company would outstrip other independents like Anadarko and El Paso Corp.

Foray Into Canada

The Anderson deal is another big foray north of the border by a U.S. company, and underscores the potential that Canadian reserves offer in meeting growing natural-gas demand in the U.S. In May, Conoco Inc. announced plans to buy Gulf Canada Resources Ltd. for $4.3 billion.

As older fields in the U.S. have tired out, Canadian imports have become increasingly important in meeting U.S. natural-gas demand. The U.S. imported about 16% of the gas it consumed last year, with almost 94% of that coming by pipeline from Canada, according to the Department of Energy. That is expected to increase markedly in years to come as U.S. production growth lags behind a burst in demand, some of which will come from new gas-fired power plants in the U.S.

Both the Anderson and Mitchell transactions are expected to close during the fourth quarter. The Anderson deal includes a $135 million breakup fee.

Subscribe to WSJ Online @ http://www.wsj.com

<img src="http://chart.bigcharts.com/industry/bigc... AXN MND&comp=AAAAA:0&rand=9342" width=527 height=316>
DVN, AXN, MND, Oil & Gas Index (ONG) S&P500, 1 YR Chart

......Jen

-- posted by JenL_2