Japanese business conglomerate Itochu Corp., true to a worldwide expansion strategy that includes carving a niche for itself in the lucrative U.S. natural gas market, has agreed to acquire E&P independent Range Resources’ property interests in the Gulf of Mexico for $155 million.
The latest deal was announced just weeks after Range agreed to sell $82 million worth of onshore Texas properties to Itochu and four months after Itochu actually entered the U.S. gas market.
Japan’s fourth largest trading company, Itochu has had a wide-ranging trade in petroleum products in the United States, but never embraced the U.S. gas market as a player until mid-2006 when it partnered up with a gas sales firm headquartered in Kansas to establish a joint venture company named Kansas Energy LLC.
Itochu ended up taking control of more than 80 percent of Kansas Energy through two of its U.S. subsidiaries, Itochu International Inc. (45 percent) and ITC Natgas Holding Co. (35 percent). U.S.-based Bullseye Energy LLC owns the remaining 20 percent.
While Kansas Energy’s business centers around the U.S. Midwest, Itochu plans to expand its sales territory to include the East Coast, “which constitutes an immense demand,” and eventually the West Coast, Itochu said in a letter to investors.
In late February and preceding the recent sale of Range offshore properties to Itochu, Range completed the sale of onshore Austin Chalk properties in Central Texas to Itochu for $82 million. Estimated reserves were not disclosed.
Further expansions possible“Further in the future, while keeping sales of natural gas at the core of our business, we have in mind an extension to areas such as investment in companies supplying natural gas to ordinary homes, participation in projects for development of gas wells in the United States, and supply of natural gas to independent power producers,” Itochu said.
Japan’s Nikkei business daily reported that Itochu’s acquisition of Range property in the U.S. Gulf was part of the company’s plan to spend about 100 billion yen (US$849.3 million) to expand its U.S. natural gas business over the next three years. Itochu plans to spend about 25 billion yen on gas development in the U.S. in 2007 alone, Nikkei said.
The U.S. Gulf properties being acquired by Itochu include Range’s interests in 37 production platforms in water depths ranging from 11 to 240 feet. None of the properties are operated by Range. At year-end 2006, Range estimated the properties contained proved reserves approximating 40 billion cubic feet of gas equivalent, representing just 2 percent of Range’s total proved reserves.
As a result of the U.S. Gulf sale, Range said it would record a pre-tax gain of about $100 million in the first quarter of 2007. This sale coupled with the February sale of Austin Chalk properties generated about $237 million of aggregate proceeds for Range.
“In both cases, the properties were not integral to our future growth, so we elected to monetize them,” John Pinkerton, Range’s president and chief executive officer, said in a prepared statement. “Most important, the sales allow us to accelerate the development of other properties where we are confident that we can aggressively grow production and reserves in the future.”
Itochu dates back to mid-1800sItochu, whose history dates back to the mid-1800s, oversees a huge business empire consisting of seven division companies and more than 1,090 subsidiaries and associated companies worldwide and globally integrated. Itochu’s operations range from the distribution of raw materials to the provision of finished products, including textiles; automobiles and industrial machinery; aerospace, electronics and multimedia; energy, metals and minerals; chemicals, forest products and general merchandise; food, finance, realty; and insurance and logistics services.
On the energy side, Itochu is involved in crude oil and gas exploration and development projects in such key regions as Azerbaijan, Algeria, U.K. North Sea, Indonesia and Australia. The company is also involved in natural gas development, including LNG projects in Qatar and Oman. Closer to Japan, Itochu is the largest private stakeholder in Russia’s Sakhalin-I oil and gas development project.
Last year Itochu adopted a “shift to aggressive business” strategy as part of its Frontier-2006 initiative covering two fiscal years ending in March 2006 and ending in March 2007.
Eizo Kobayashi, Itochu’s president and chief executive officer, told investors that Frontier-2006 would allow the company “to gain a foothold for becoming a highly profitable entity achieving over 100 billion yen in consolidated net income in a steady and sustainable manner.”
Itochu is the second Japanese business conglomerate to gain a foothold in the U.S. Gulf. Through its Marubeni Offshore subsidiary, Marubeni acquired most of Pioneer Natural Resources’ deepwater assets, including several significant discoveries near the BP-operated Thunder Horse field, the largest oil discovery in the Gulf of Mexico. Interestingly, Itochu and Marubeni are partners in a steel products company called Marubeni-Itochu Steel Co., which operates through more than 100 domestic and overseas subsidiaries and affiliates.