Weekly Update: Williams bid sparks takeover war

Mark Young
Evaluate Energy

Williams Companies has ignited a takeover battle with Energy Transfer Equity LP (ETE) for the acquisition of Houston-based Southern Union Company (SUG), which owns one of the biggest natural gas pipeline networks in the US, serving the Southeast, Midwest and Great Lake markets. Last week, ETE agreed a deal to acquire SUG that valued the company at around $7.9bn. A week later, following an expected rise in SUG share price, Williams placed an all-cash bid of $39 per share valuing the Texan company even higher at $8.6bn, leaving SUG with a decision to make. ETE professes that its equity-based deal represents greater real value for SUG shareholders, but even with a signed agreement in place and substantial cancellation fees, ETE surely has a mountain to climb in order to stop Williams from stealing the spoils.

In E&P, Repsol and Alliance Oil have joined forces to expand their Russian businesses. Repsol is to make an initial cash investment of $400m in the joint venture, whilst Alliance, who will hold 51%, will contribute $600m-worth of producing assets in the Volga-Urals region. The deal gives Repsol access to producing assets in the world’s biggest oil & gas producing country. Alliance will benefit from the joint venture with Repsol beyond the initial cash investment, gaining from the Spanish giant’s vast technical expertise.

In the North Sea, BP’s divestiture programme progressed this week with Premier Oil exercising pre-emption rights over the sale of the Wytch Farm assets to Perenco. Premier has decided to acquire a 17.7% interest in the assets for $96m, leaving Perenco with a 50.1% stake once the acquisitions are complete. Premier is less vulnerable than most to the recent UK tax increases due to large tax allowances garnered from its 2009 acquisition of North Sea Explorer, Oilexco.

In the US, Encore Energy Partners LP and its general partner interest holder Vanguard Natural Resources strengthened their own ties this week with the combined $85m acquisition of producing Permian basin properties. The reasonably high $85,000 per boe of production is offset by the fact that the assets acquired are 100% proved developed, meaning little capital expenditure and instant cash flow. In other news, Apache Corp gained 84% of all tracts awarded in the Alaskan Cook Inlet 2011 lease sale, paying around $9m for the privilege.

In Canada, Encana’s proposed $5.4bn farm-in agreement with PetroChina in Cutbank Ridge has collapsed. Both price and operating terms have been cited as causes for the deal’s breakdown. The original terms would have given Encana a relatively high normalised cost per MCFe of 1P reserves of $3.89 for this shale gas project, but Encana has stated that it sees more value in separating the assets into sections, and searching for individual investment. The company have consequently doubled their net divestiture guidance for 2011.

Away from E&P, Total’s busy month continues. On the heels of completing its Sunpower acquisition last week, this week has seen them dispose of non-core assets. The French major sold a 5% interest in the 830km Ocensa Pipeline in Colombia to Petrominerales for $281m, and continued restructuring plans for its European downstream sector by selling 810 UK service stations for $654m. Royal Dutch Shell then immediately acquired 254 of the stations for $400m from the UK-based acquirer, which although represents a higher cost per station, also suggests these stations are in prime locations. Two Canadian companies have been also been active in Europe this week. Inter Pipeline Fund more than doubled its western-European storage capacity with the $512m acquisition of DONG Energy’s Danish oil terminals, and Tuscany International Drilling acquired international oil services company Caroil from French-based Maurel & Prom for $213m.

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