Weekly Update: Energy Transfer Equity regains pole position in race to acquire Southern Union

Energy Transfer Equity LP (ETE) regained control this week in the battle to acquire Texas-based Southern Union Company (SUG). Three weeks ago, the company had made an initial approach and signed an agreement with SUG, only for Williams Companies to swoop in with a better offer (around $8.6 billion). ETE maintained that its offer was superior and the SUG would be breaching the merger agreement if any kind of discussions with Williams took place. However, this week ETE has seen fit to up its offer, replacing the initial Class B stock-based offer for a new “superior and simpler” $8.9 billion package, which includes $5.1 billion in cash and common ETE units. This represents a huge increase on their original offer, with the premium increasing from roughly 19% to 42% on SUG’s share price on the day prior to the original agreement.

The large cash component of the deal, which can rise to a maximum of approx. $3.1 billion (60% of consideration), has caused ETE to sign the next biggest deal of the week with its partner Energy Transfer Partners LP (ETP) for one of the “best pipeline systems” in the US. To finance a substantial portion of this cash sum, ETE will drop down the 50% interest in Citrus Corp. owned by SUG for $1.9 billion upon the successful completion of the SUG acquisition. Citrus Corp owns 100% of a 5,500-mile interstate gas transmission network centred in Florida, which supplied approx. 63% of the state’s consumed natural gas last year. ETE, as holder of the general partner interest in ETP, will still benefit from this entrance into the Florida market. Both of these transactions are expected to close in Q1 2012.

In Europe, two deals involving integrated companies advanced this week, with one closure and one passing the hurdle of gaining EU approval. The closed deal came from the Hungarian Government taking a further 21% in MOL for $2.7 billion. The interest was acquired from Surgutneftegas who held the stake for the previous 3 years. In Spain, IPIC of Abu Dhabi gained EU commission approval for its $5.3 billion acquisition of Total’s 48.83% stake in CEPSA. The move will result in IPIC increasing its share in the company to 96% before then launching a compulsory acquisition for the remaining 4% interest.

In one of the bigger E&P deals to happen in a quiet week, Laredo Petroleum completed the $1 billion acquisition of fellow US private company Broad Oak Energy Inc. The two companies own assets in similar areas, and Laredo says the combination, its first acquisition since 2008, will bolster the company’s position as a leading player in the Permian Wolfberry oil play, and complement its well established presence in the liquids-rich Granite Wash play in the Anadarko basin. This deal represents the biggest Permian-focused acquisition this year, almost tripling the next biggest, namely W&T Offshore’s $366 million acquisition in April. It is also the biggest Permian-focused acquisition since Apache’s $2.44 billion purchase of BP assets in July last year.

In China, the government has continued to fast track the development of the country’s shale deposits this week with its first shale gas licensing round. The round involved Sinopec and Henan Provincial Coal Gas Development and Utilisation Co., each acquiring one shale gas block in the Chongqing region. Although China has yet to start producing from its shale resources with only one horizontal well completed so far, the potential resources for shale gas in the country are potentially huge. The IEA estimates that China may hold 1,275 trillion cubic feet of recoverable shale gas resources, a figure greater than in the US and almost one fifth of all the estimated shale gas resources worldwide.

In other licensing round news, the Northwest Territories of Canada dominated the kind of headlines usually reserved by Alberta and British Columbia this week, with a C$534 million dollar land sale. A total of eleven parcels were offered, but the bulk of the value was taken up by just two of them, Husky Energy bidding C$376 million for the pair. Husky’s offers far outstrip the previous record bid for a parcel of land in the province of C$32.7 million in 2006 from Talisman Energy. Husky was reluctant to offer a great deal of information on what they believe the parcels may contain but fellow successful bidder MGM Energy believes that the area will form an important emerging shale oil play.

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