Saturday, July 01, 2006

Anadarko tries to rival the big boys Anadarko Petroleum Corporation, the US energy company, got far bigger with the announced acquisition of two smaller rivals, Kerr-McGee and Western Gas Resources. The buy will make Anadarko the #5 energy company in North America. The deal mostly involves natural gas reserves in North America, and is predicated on the notion that natural gas prices will stay at their current high level or go even higher. The two deals are separate though simultaneous. Anadarko is offering $18 billion for Kerr-McGee (including debt assumption) and around $4.8 billion for Western Gas. Both represent a major markup over current stock prices. Kerr-McGee is one of the big names historically in US energy. Recent stockholder pressure has caused it to sell off its chemical division and its North Sea assets. Its currently assets are mostly in the Gulf of Mexico. Western Resources has natural gas holdings moistly in Wyoming. Anadarko's holdings are in the Gulf of Mexico and Rocky Mountains, so they fit well. (Anadarko is also active in Algeria.) The emphasis on US assets is telling. As a Wall Street Journal article ("Anadarko to Buy Kerr-McGee and Western Gas", 6/24/06) notes: The two deals come as part of a wave of consolidation among gas producers, even as commodity prices for the fuel stay high by historical measures. Many of these acquisitions are being driven by the desire of companies to own more U.S. assets at a time when overseas governments are aggressively demanding higher payments and raising taxes. Among other similar recent North America buys are: ConocoPhillips bought gas producer Burlington Resources Inc. for $33.8 billion. Chevron Corp. acquired Unocal Corp. for $18 billion. Occidental Petroleum bought Vintage for $4 billion Petrohawk bought KCS Energy for $1.6 billion. Just recently, Energy Partners bought Stone Energy for $1.4 billion. French oil giant Total acquired Canada's Deer Creek for $1.3 billion. And the M&A craziness never end. Already the next move is being anticipated, according to a Financial Times article ("Anadarko deal heralds beginning of the end", 6/25/06), the fun is just beginning: "Of the mid-tier US companies, on a two to five-year time scale, are any of these guys going to be left?" said Derek Butter, analyst at Wood Mackenzie, the Edinburgh consultants. He added Marathon, Amerada Hess and Devon were most likely to be the next targets. Furthermore, according to the WSJ article: The deal surprised some analysts who have long expected Anadarko to be acquired, rather than be the acquirer. But others believe that, in the long run, the deals could make Anadarko even more attractive to an energy behemoth. Ib other words, acquiring is just a oprologue to being acquired. As oil and gas companies are swimming in cash and are being shut out or highly regulated in once welcoming countries (Bolivia and Ecuador, for example) . For that reason, they are willing to pay a big premium for guaranteed and trouble-free assets. 1:37:25 PM

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