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Oil company scoops up a pair of competitors

With the $21.1-billion deal, Anadarko writes the next chapter in industry consolidation.

By ASSOCIATED PRESS
Published June 24, 2006

HOUSTON - Anadarko Petroleum Corp. on Friday announced plans to acquire two smaller competitors in a $21.1-billion deal that will create the nation's largest independent exploration and production company.

Anadarko's plan to buy Kerr-McGee Corp. and Western Gas Resources Inc. in separate all-cash transactions is just the latest example of industrywide consolidation that reflects the large sums companies have at their disposal amid record profits, as well as the difficulty they face in getting bigger simply through more drilling.

In a smaller deal announced Friday, New Orleans-based independent petroleum producer Energy Partners Ltd. said it would acquire oil and natural gas producer Stone Energy Corp. of Lafayette, La., for $1.4-billion.

These deals and others like them, including ConocoPhillips' acquisition of Burlington Resources Inc. for $35.6-billion in December, exemplify the growing interest among energy producers to increase their foothold in North America at a time when it is becoming more expensive and harder politically to explore for oil and gas in other parts of the world.

"This industry will continue to cannibalize itself because of limited access to new resources," Oppenheimer & Co. analyst Fadel Gheit said.

Houston-based Anadarko's acquisitions will more than double its annual sales. They also will hike Anadarko's footprint in two burgeoning natural gas drilling regions - the deepwater Gulf of Mexico and the Rockies - at a time when the continent's demand is on the rise and overall output is stagnating.

But with oil and natural gas prices as high as they are, Anadarko paid a steep premium for both companies, and the company's shares fell 7 percent after announcing the deals.

Nevertheless, Gheit said major integrated energy companies such as Chevron Corp. and Royal Dutch Shell PLC may also think seriously about using their own massive cash reserves to buy North American assets that just a few years ago seemed less tempting as they focused on international growth.

With resource nationalization rising amid soaring energy prices, it has become more challenging to explore for oil in places such as Russia and Venezuela, leaving executives scrambling for other growth options. Their focus has turned increasingly toward natural gas, with a bias toward serving the U.S. market.

Anadarko will pay $16.4-billion in cash, or $70.50 per share, for Oklahoma City-based Kerr-McGee and assume $1.6-billion in debt. That represents a 40 percent premium over Thursday's closing price of $50.30 on the New York Stock Exchange.

The Houston producer will pay $4.74-billion, or $61 per share, for Denver-based Western Gas Resources and assume $560-million in debt. That cash offer represents a 49 percent premium over the company's closing stock price of $40.91 on Thursday.

Analysts said the hefty premiums show the company is betting that natural gas prices will remain higher than historical levels with robust demand for a fuel used to heat homes, produce electricity and manufacture all sorts of petrochemicals.

Imports of liquefied natural gas are on the rise, but building the ships and terminals necessary to support this side of the business takes years and permitting has proven difficult.

[Last modified June 24, 2006, 06:40:58]