Kerr-McGee offshore rig
A Kerr-McGee offshore platform is seen in the Gulf of Mexico in an undated publicity photo. Kerr-McGee Corp. said on Friday its board of directors has unanimously approved an all cash offer of $70.50 per share from Anadarko Petroleum Corp.
updated 6/23/2006 10:34:47 AM ET 2006-06-23T14:34:47

Oil and natural gas producer Anadarko Petroleum Corp. on Friday agreed to pay $21 billion to acquire two smaller competitors, Kerr-McGee Corp. and Western Gas Resources Inc., in a bid to boost its North American output.

The acquisitions, which would more than double Anadarko’s annual sales, provide the Houston-based company with a bigger footprint in two burgeoning regions for natural-gas drilling — the deepwater Gulf of Mexico and the Rockies — at a time when the continent’s demand is rising but overall output is stagnating.

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

Anadarko also will pay $4.74 billion, or $61 per share, to buy Denver-based Western Gas Resources and will 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.

“The core assets being acquired strongly complement Anadarko’s existing properties, providing the scale and focus needed to deliver more robust, predictable and efficient growth,” Anadarko Chairman, President and CEO Jim Hackett said. Hackett also said he expects to generate “substantial after-tax proceeds” by selling some assets from all three of the companies.

The hefty premium shows industry executives remain confident that natural gas prices will remain higher than historical levels because of 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.

Moreover, with the cost of exploration rising and companies having a hard time gaining access to resources, analysts say acquisitions are a quick and easy way for companies to grow.

Also Friday, independent petroleum producer Energy Partners Ltd. said it would acquire oil and natural gas producer Stone Energy Corp. for $1.4 billion. And in December, ConocoPhillips Co., the nation’s third biggest energy company, acquired oil and gas producer Burlington Resources Inc. for $35.6 billion.

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

It isn’t just available land that is in short supply. “In today’s tight labor markets, gaining qualified people is a bigger focus than achieving cost savings through consolidation,” Hackett said.

Friday’s news sent shares of Western Gas sharply higher to $59.59, up $18.68, or 46 percent, from Thursday’s close. Kerr-McGee shares jumped $18.41, or 37 percent, to $68.71, while shares of Anadarko fell $2.39, or 4.9 percent, to $46.

Combined, the companies would have more than $17 billion in annual revenue. Anadarko, which has 3,300 employees reported $7.1 billion in 2005 sales. Kerr-McGee revenue totaled $5.93 billion, and Western Gas Resources had $3.96 billion in 2005 sales.

Under the Kerr-McGee deal, Anadarko will assume debt and other liabilities totaling $1.6 billion.

Hackett said Anadarko will review the consolidated assets to select divestiture candidates, with the dual goals of paring acquisition-related debt and refocusing the portfolio.

“All three companies have certain assets that we will likely deem to be non-core once combined,” he said.

Kerr-McGee’s core properties are located in the deepwater Gulf of Mexico and onshore in Colorado and Utah. The company has about 3,800 workers.

Western Gas Resources’ producing properties are located primarily in Wyoming. The Company also owns and operates natural gas gathering, processing and treating facilities in major gas-producing basins in the Rocky Mountain, Mid-Continent and West Texas regions of the United States. The company’s work force totals about 800.

Anadarko is one of the world’s largest independent exploration and production companies, concentrated in North America. It’s operations extend from the deepwater Gulf of Mexico, up through the western U.S. and Canadian regions and onto the North Slope of Alaska. Anadarko also has major positions in North Africa, the Middle East and Indonesia, as well as exploration or production operations in several other countries.

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