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$3.4 billion merger brings balance to Noble’s portfolio Patina Oil & Gas active in U.S. onshore, with more than half of production from Colorado, with rest in Oklahoma, Texas and New Mexico Ray Tyson Petroleum News Houston Correspondent
Exploration and production independents Noble Energy and Patina Oil & Gas, which had been quietly talking merger since July, finally tied the knot on a $3.4 billion agreement touted by the management of both companies as a corporate marriage made in heaven.
There’s little doubt that fast-growing Patina, which increased 16 fold in size over the past eight years, was grooming itself to be a worthy bride. The company said it had a dozen “serious discussions” with prospective buyers prior to taking Noble’s offer.
As the company began to approach $5 billion in enterprise value, based entirely on its strong U.S. onshore position, Patina began contemplating, “as any good independent would,” expanding into the offshore and international arenas, Thomas Edelman, Patina’s chief executive officer, said in a Dec. 16 conference call with industry analysts.
“And that is a daunting prospect to do from scratch,” he added. “By doing this transaction, we not only receive an attractive price and potential for liquidity for our shareholders, but we’ve aligned ourselves with someone with unusually strong … international and offshore portfolios.”
Houston-based Noble has immersed itself in international projects in Ecuador, China, West Africa, Israel and the North Sea. The company also has become increasingly active in the deepwater Gulf of Mexico.
On the other hand, Noble was looking to balance its investment portfolio by strengthening the company’s U.S. onshore position, especially in the gas-rich Rocky Mountains and Mid-continent.
“This is a significant repositioning of the company,” said Charles Davidson, Noble’s chief executive officer. “For one, it really fills a niche that we have been looking to fill for some time. It introduces new cores in some very important basins, especially gas basins here in the U.S.” Acquisition would boost production and reserves The acquisition, pending shareholder and government approvals, would boost Noble’s production and reserves by more than 50 percent. It also would give Noble a more weighted U.S. portfolio (55 percent versus 45 percent) compared to Noble’s current 70 percent international and 30 percent domestic.
“Another thing that was really attractive to us and very exiting was the multi-year project inventory — seven or eight years of projects identified now that really gives this tremendous running room,” Davidson said.
“Also, with the high return Patina projects that are predominantly exploitation and development projects, it reduces our risk and reduces our reliance so much for growth here in the U.S. on exploration.”
Patina currently produces about 55,700 barrels of oil equivalent per day, with 2005 production expected to increase 12 percent over the 2004 average. Upon completion of the acquisition, Noble’s daily production would jump about 53 percent to 161,700 barrels of equivalent. Roughly 60 percent of the combined company’s daily production would be natural gas. More than half of Patina’s production from Wattenberg Roughly 54 percent of Patina’s 253 million barrels of oil equivalent reserves at year-end 2003 were located in Colorado’s Wattenberg field in the Denver-Julesburg basin, with the rest located in various fields in Oklahoma, the Texas Panhandle and New Mexico.
Patina currently estimates that its proved reserves will grow to about 263 million barrels of equivalent by the end of this year. Patina also has an additional 214 million barrels of probable and possible reserves.
Under terms of the transaction, Patina shareholders would receive $1.8 billion in Noble stock and $1.1 billion in cash. Additionally, Noble would assume about $500 million in debt, $300 million of which is current Patina debt, plus $200 million of debt incurred due to the termination of existing price hedges on Patina production prior to closing.
Based on the closing prices of Noble and Patina shares on Dec. 15, the acquisition price of $37.89 per share means Noble would be paying a nearly 19 percent premium for Patina. Upon closing, expected next March or April, Patina would become a subsidiary of Noble.
Davidson would remain as Noble’s chairman, president and chief executive officer. Edelman would join Noble’s board of directors, as well as one other director from Patina’s board of directors.
It is also expected that several of Patina’s existing officers would join Noble’s leadership team. Patina’s current headquarters in Denver would be retained as a regional office for Noble.
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