Houston-based independent Newfield Exploration Co. plans to increase its natural gas portfolio with the $333-million acquisition of Tulsa's Lariat Petroleum Inc., including assumption of the privately held producer's liabilities. The acquisition gives Newfield a new focus area, with quality, long-lived gas assets having a reserve life index of about 11 years. Lariat's activities are focused primarily in the Anadarko Basin of Oklahoma. As of June 30, 2000, it had a proved reserve base of 256 billion cubic feet equivalent (Bcfe). Approximately 75% of this is natural gas and 90% is in Oklahoma. "Lariat and Newfield are very much alike," says David A. Trice, Newfield president. "We have the same business principles and have been successful by combining good people, technology and a balanced approach between acquisitions and exploration." Lariat shareholders will receive approximately $180 million in cash and stock, and some $153 million will go toward assumption of Lariat debt and other obligations. Newfield plans to finance the cash portion of the acquisition with cash on hand and with borrowings from existing creditors. Lariat president Randy Foutch, who founded the company, will continue as its president. The deal is good news for driller Unit Corp., says Bob Christensen, analyst with First Albany Corp.'s FAC/Equities division, as it may accelerate gas drilling in Oklahoma's Anadarko basin, benefiting Unit's drilling-rig business, he says. Unit is the largest drilling rig contractor in Oklahoma; 27 of its 48 rigs operate in the Anadarko Basin. Moody's Investors Service raised its outlook on Newfield debt to positive. The acquisition price is about $1.30 per thousand cubic feet equivalent of proven reserves, or $7.80 per BOE. "Though the acquisition is fairly expensive by historical standards, the current price environment and Newfield's proposed natural gas hedging program for the acquisition mitigate a portion of the price risk and Newfield gains an important degree of basin diversification," Moody's reports. Following the closing, Newfield's debt-to-total-capital will be about 35%, total debt may be in the range of about $2.90 per BOE of proven developed reserves, and debt plus preferred stock may be about $3.40 per BOE of total proven reserves, the firm adds. Bob Morris, E&P analyst for Salomon Smith Barney, says the acquisition extends Newfield's reserve life to 6.5 years. There is significant growth potential from Lariat's properties, too, as the smaller firm has not yet fully evaluated or exploited its assets, particularly the properties it acquired from Phillips Petroleum in 1999, he adds. Christensen says, "Lariat has only scratched the surface of defining future potential drill sites for itself."
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