Dallas-based Pioneer Natural Resources and Denver-based Evergreen Resources announced a $2.1 billion “strategic merger” this morning in which Evergreen will become a subsidiary of Pioneer. The deal gives Pioneer a foothold in the Rockies’ unconventional gas basins and a chance to reinvest excess cash flow in low-risk, onshore, North American gas plays.
The merger will add 2.4 trillion cubic feet of proved and probable reserves North America gas reserves to Pioneer’s portfolio and will enhance the independent’s Canadian asset portfolio, the smallest of its asset bases.
Scott Sheffield, Pioneer’s chairman and CEO and an Evergreen board member, said he and Mark Sexton, Evergreen’s chairman and CEO, began discussing the possibilities of a merger in March.
Under the terms of the deal, holders of 44 million Evergreen common shares can receive a total of 25 million Pioneer common shares and a total of $850 million in cash.
The offer carries a value of $39.35 per Evergreen share, which was based on Pioneer's closing price on Monday. Investors can choose to receive 1.16135 Pioneer shares, $39.35 in cash or a mix of cash ($19.50) and stock (0.58175 Pioneer shares) for each Evergreen share held.
Denver-based Evergreen agreed to sell its assets in Kansas prior to closing the deal, expected to happen in the second half of this year.
Sheffield briefly mentioned Alaska in an audio web cast this morning, saying both he and Sexton are enthused by their firm’s opportunities in the state.
Sexton, who is out of a job but will sit on Pioneer’s board, said the merger will result in “more aggressive development” of Evergreen’s properties.
Pioneer officials predicted Evergreen production will double between now and 2008 and Pioneer production will grow by an average of 10 percent per year over next 10 years.
Calgary-based Enbridge Inc. says it has the capacity on its own to build and operate an Alaska North Slope natural gas pipeline, but says in its application under Alaska’s Stranded Gas Development Act it would prefer to lead a consortium with producers and downstream market participants to put together the deal.
Enbridge announced this morning it has filed its project application with the state.
“This application signals Enbridge’s intent to take a lead role in the creation of a consortium that will pursue these opportunities,” the company says in its application. “The project will require producer and market support and a strong alignment of key stakeholders to mitigate and share the significant risk that a project of this size and scope will present.”
The company proposes in its application to build a 36-inch-diameter pipe, capable of carrying 2.6 billion cubic feet of gas per day, with the option of perhaps adding a second line to boost the project to more than 5 bcf per day — if gas supply and market demand justify the expansion.
North Slope producers and other project hopefuls have proposed a line moving 4.5 bcf per day as the most economic option, with the larger gas supply reducing unit costs for construction and the subsequent tariff. But Enbridge said it believes a smaller line would help reduce risks of cost overruns and flooding the market with too much gas at once, while also allowing it to buy conventional-size pipe from North America mills at competitive prices.
Enbridge says gas could start flowing through the line nine years after “project kick-off.” The Stranded Gas Act allows the company to negotiate a long-term fiscal contract with the state for payments in lieu of state and municipal taxes on the line.
The company estimates the smaller line would cost about $3 billion from the North Slope to the Alaska/Yukon border. A gas treatment plant on the slope would be additional, as would a new pipeline from the Alaska border into Alberta to connect with existing lines to carry the gas across North America.