Westport Resources Corp. will solidify its position in the Rockies with the purchase of gas-producing properties and some midstream assets in the Uintah Basin of Utah from El Paso Corp. The deal calls for a $502-million cash payment. The assets include approximately 600 billion cu. ft. of gas equivalent of proved reserves. Including its recent acquisition of southeast Texas properties from Smith Production Inc., Westport's estimated reserves will total 1.6 trillion cu. ft. of gas equivalent upon closing of the El Paso deal. Don Wolf, Westport chairman and chief executive officer, says the assets are among the top 10 gas fields in the Rockies, and added that the purchase is a rare opportunity without participating in a corporate merger. In a separate deal, El Paso, which is on a selling streak this year, plans to sell some coal reserves and properties to an affiliate of Natural Resource Partners LP for $69 million, and it accepted an offer to sell its interest as a purchaser of liquefied natural gas (LNG) from the Snohvit project in Norway for $210 million to Statoil ASA. The assets Westport is acquiring include interests in the Natural Buttes and Ouray fields, which encompass about 1,070 wells-of which 800 are operated by El Paso-on 240,000 net leasehold acres. Approximately 205,000 of those are net developed acres, and 35,000 are net undeveloped. Current net daily production is approximately 80 million cu. ft. of gas equivalent. In addition, the deal includes 240 miles of gathering pipelines with capacity of about 200 million cu. ft. per day and current throughput averaging 150 million per day, to Colorado Interstate Gas Pipeline. With a reserve life index of approximately 21 years, the assets would extend Westport's reserve life index to approximately 10 years, executives said. As a result of the transaction, Westport's proved reserves will be 68% gas, up from 51%, and production will be 68% gas. Westport has identified approximately 1,500 development drilling opportunities and several deeper exploratory opportunities. The company expects to drill an estimated 80 to 90 wells in 2003 with plans to accelerate the drilling program in 2004 and beyond. In the past three years, El Paso has drilled 40 to 50 wells on the properties, and 47 in the first six months of 2002. "We believe these long-lived properties possess exceptional upside and, combined with the proved reserves, will position us to continue to grow our reserve and production base during the next five to 10 years," Wolf said. Westport plans to fund the transaction initially with debt, though it is evaluating additional financing options, including selling noncore assets in the Midcontinent and the Permian Basin, securing a partner for a portion of the acquisition, and issuing equity. The deal would take Westport's long-term debt-to-capital ratio from 37% to about 53%. Executives plan to return that ratio to less than 40%, and intend to keep the company's senior unsecured credit ratings in the mid-Bs. -Petroleum Finance Week Grant Prideco Inc. will buy Reed-Hycalog from Schlumberger Ltd. for approximately $350 million in cash and stock, adding drillbit technology, manufacturing, sales and service to its operations. "We believe this is a great product-line extension," says Grant Prideco president and chief executive officer Michael McShane. "There are a number of overlapping marketing synergies in designing drillstring and bits that we think we can realize in the long term." Geoff Kieburtz, analyst for Salomon Smith Barney Inc., says, "Schlumberger had been shopping this business for some time in an effort to shed noncore businesses and reduce debt. For Grant, the transaction represents a logical product diversification." Robert Ford of Sanders Morris Harris Group says, "It's an excellent acquisition. Management intends to run Reed-Hycalog as a stand-alone business, in contrast to Schlumberger's focus on geographic entities instead of product lines. In our opinion, this will enable Reed to maximize its full potential." Reed-Hycalog has slightly less than 20% total market share in its business, making it the world's third-largest drillbit manufacturer behind Baker Hughes Inc. and Smith International Inc., he added. Its revenue is split between the U.S. and abroad. Roller-cone bits generate 60% of its sales, while fixed-head units produce the rest. James K. Wicklund of Banc of America Securities LLC says, "I think it's a killer deal. It's accretive, it's strategically complementary and the difference in what Reed-Hycalog is to Grant Prideco lets it optimize the result." Specifically, Grant Prideco will pay Schlumberger $255 million in cash and 9,731,834 shares of common stock. It will assume approximately $5 million of liabilities and acquire approximately $120 million of working capital. To finance the cash portion, the company is replacing its existing bank line with a $265-million credit revolver, and it has bridge facilities committed until it raises $150 million in the public and private bond markets. Assuming it has to issue that much debt, the company's ratio of debt to total capital would climb from 30% to about 45%. But Grant Prideco expects it will be able to reduce the ratio to 30% in about 18 months, strictly from cash flow.