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Oxy pays big bucks for Vintage Occidental Petroleum sets merger value $3.8B, 33% premium over stock price; deal includes coveted Argentine, California assets Ray Tyson Petroleum News Contributing Writer
Occidental Petroleum, breaking with its tradition of buying individual assets rather than whole companies, plans to acquire exploration and production independent Vintage Petroleum in a merger valued at $3.8 billion — a handsome 33 percent premium to the price of Vintage stock at the time the deal was struck.
“We would have liked to have bought it at a lower price, but he wouldn’t sell it,” Oxy Chief Financial Officer Steve Chazen said in apparent reference to Vintage’s chairman and chief executive officer, Charles Stephenson.
However, it was Oxy that first approached Vintage in June 2004 about a possible merger, Chazen disclosed in an Oct. 14 conference call, noting that Oxy was particularly interested in Vintage’s Argentine and California oil assets.
“We made a number of other visits, so we sought them out,” he added. “The company wasn’t brought around and shopped to us.” Assets will be incorporated Oxy said it would incorporate Vintage’s California assets into its nearby operations in the southern San Joaquin Valley and in the Sacramento Valley. Oxy said it would do the same with Vintage’s assets in South America, where Oxy is one of the largest producers in Colombia and Ecuador, with combined second quarter 2005 net production of 70,000 barrels of oil per day.
In regard to what Oxy finally agreed to pay for Vintage — $3.8 billion in cash and Oxy stock — “it has been hard to actually figure a premium,” Chazen confessed to industry analysts.
Chazen suggested that Vintage shares were tarnished and therefore undervalued, due in large part to a prior Vintage Canadian acquisition that “didn’t turn out very well.”
“I think it hurt the company’s reputation,” he said. “And so the price, if you will, was determined by looking at sort of the asset values rather than the premium to the stock.”
In exchange for cash and stock, Oxy would get Vintage and its year-end 2004 proved reserves of 437 million barrels of oil equivalent, 50 percent of which are located in Argentina and 32 percent in the United States. Also, Oxy would receive probable and possible Vintage reserves amounting to about 421 million barrels of equivalent. During the second quarter of 2005, Vintage’s total production averaged about 76,000 equivalent barrels per day, with Argentina and California contributing 37,000 and 11,000 equivalent barrels per day, respectively. Oxy plans to increase production “We hope to double Vintage’s production from Argentina within five years, as well as increase production from California by up to 20 percent over the next few years,” said Ray Irani, Oxy’s chairman, president and chief executive officer.
However, Oxy said it would attempt to divest non-strategic Vintage assets in East Texas, along the Gulf Coast and in the Mid-continent region. These assets accounted for about 19,000 equivalent barrels per day of Vintage’s second quarter 2005 production.
California-based Oxy had year-end proved reserves of 2.53 billion equivalent barrels, and the addition of Vintage would boost Oxy’s reserves to a record 3 billion equivalent barrels, the company said. Oklahoma-based Vintage was formed in 1983 and went public in 1990. In addition to its U.S. and Latin America assets, the company also maintains a small production base in Yemen.
“Vintage’s mix of domestic and international assets is complementary to Occidental’s existing portfolio of domestic and international opportunities and enhances the competitive ability of the combined company,” Vintage’s Stephenson said in prepared remarks.
Under terms of the deal, expected to close in next year’s first quarter, Oxy would pay $20 per Vintage share in cash, plus 0.42 Occidental shares per Vintage share. Oxy also would assume about $550 million in Vintage debt.
Oxy said it expects to finance the acquisition and a planned Oxy stock re-purchase program from $1.7 billion of cash on hand as of Sept. 30, plus additional cash generated in this year’s fourth quarter. In addition, Vintage is expected to have about $225 million in cash at year-end 2005, Oxy said.
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