Dutch/Shell hopes to buy the additional production growth it has found elusive recently: output will Royal increase 6% with the $7-billion acquisition of London-based Enterprise Oil Plc. J.J. Traynor, oil analyst for Deutsche Bank in London, says the deal looks expensive, "given the lack of strategic uplift from an admittedly high-quality asset base. Much depends on Shell's ability to extract more from Enterprise than Enterprise could from itself." (For more on the deal, see "Just Buy It" in this issue.) The joke (or rumor) last month was that Shell would buy Tulsa-based The Williams Cos. Inc., the bidder to which it lost Denver-based Barrett Resources Corp. and its 2.1 trillion cubic feet equivalent (Tcfe) of proved U.S. gas reserves last summer. Shares of Williams had fallen precipitously in February-to $14.06 at one point-while investors were worried about the company's financial obligations to a failing telecom spin-off, Williams Communications. With WMB improved to about $23 a share at press time, the conjecture has been dampened. Shell could still afford to buy the company, but at what price? With the stock at about $23 and long-term debt at $9.5 billion, the market price for Williams, without a premium, is about $22.3 billion. With 557 million diluted shares outstanding, a 25% premium carries a bill of about $25.5 billion. A 50% premium would cost about $28.7 billion. A year ago, the stock was trading at about $43 a share-nearly 90% more than the recent price. The bill for a $43-per share offer would be $33.5 billion. Shell is getting Enterprise Oil for a much cheaper price than what Williams paid for Barrett, though. (Well, it hopes to: at press time, ETP shareholders were not very impressed with Shell's offer; 15% of shares had been tendered within its first 10 days on the table.) For Enterprise's 1.2 billion barrels of oil equivalent of proved reserves, Shell is offering $6 per BOE. For Barrett's 350 million BOE of proved reserves, Williams paid $8 per BOE. That was at the height of the frenzy last year for acquiring U.S. gas reserves. Shell's original offer for Barrett ($55 per share) was the equivalent of $6.29 per BOE; its second, and final, offer ($60 per share) was $6.86 per BOE. Gordon A. Howald, integrated-energy analyst for Credit Lyonnais Securities (USA) Inc., puts Williams' book value per share at $11.74. Concerning Shell, or another major, buying Williams, he says, "It's probably not going to happen. Williams doesn't have a strong balance sheet but that's changing fairly quickly." Each company could probably benefit from a merger, but it could cost Shell more than what the market price for Williams stock suggests. "Being independent has always been a priority for [Williams management]...I would be shocked if something like that were to happen." Of course, at the right price, "if I'm a shareholder, I might be tempted to say 'yes'...At the right price, anything could happen." Shell's buying power-touted earlier this year to be about $20 billion-is lower now, given its plans to acquire Enterprise and Pennzoil-Quaker State, and with its recent buyout-along with Saudi Aramco-of Texaco Inc.'s share of downstream marketing ventures Equilon Enterprises and Motiva Enterprises. Moody's Investors Service analysts say Shell's new debt level of about $13 billion (if all the deals are consummated at the current offer price) is "sizable" for Shell, "both in absolute terms and relative to its historical debt balances." Yet, the company still has a lot of buying power left. Its debt-to-capitalization will be about 20%-a small amount by E&P industry standards and in line with its strongest-rated peers. "When completed, Shell will become more levered, shifting from what has been in recent years a large net cash balance ($6.7 billion in cash at year-end 2001) to a net debt position that could exceed $15 billion by year-end 2002," the Moody's analysts report. -Nissa Darbonne, Managing Editor