In the industry's fifth multibillion-dollar move to acquire Rockies gas assets in the past year, Houston-based Noble Energy Inc. (NYSE: NBL) plans to acquire Patina Oil & Gas Corp. (NYSE: POG) for approximately $3.4 billion, including assumption of debt. The companies had combined year-end 2003 proved reserves of 710 million barrels of oil equivalent (55% domestic; 63% gas), daily production of approximately 61,400 bbl. of oil and 602 million cu. ft. of gas, and a reserve life of 12 years. Post-closing, Noble will have a concentrated core operating area on the Gulf Coast and in the deepwater Gulf of Mexico, and new core operating areas in the Rocky Mountain and Midcontinent regions. Following completion of the deal, Tom Edelman, Patina chairman and chief executive officer, and one other Patina board member will join Noble Energy's board. The deal is expected to close by April 2005. "While the addition of Patina's assets improves Noble's reserve profile on several metrics, the proposed financing will increase Noble's financial leverage significantly," says Standard & Poor's credit analyst Ben Tsocanos. "However, Standard & Poor's is concerned that the use of debt to partially fund the large premium being paid for Patina nearly doubles Noble's leverage on a per-BOE basis." Lloyd Byrne, an analyst with Morgan Stanley, asks if the transaction is accretive. "We think so. Using our expectations for production, operating costs and hedging, we find the deal to be 13% accretive to 2005 earnings per share and 15% accretive to 2006 EPS estimates. This is based on current hedges in place. If Noble hedges 75% of the transaction at today's prices, this raises the accretion to 19% and 22%, respectively." Does the deal add value? "The strategic fit makes sense," Byrne says. "The method of funding and hedges make it accretive to EPS. However, the price paid is steep, and based on our longer-term outlook for commodity pricing, [which is] $5 per thousand cu. ft. normalized, cost for PUD conversion and growth expectations, we find value accretion marginal." Brad Beago, an analyst with Calyon Securities (USA), has lowered his rating on Patina to Neutral from Add. "On a cash basis, we see little upside from the current level between now and completion of the deal. As both companies report fourth-quarter results and year-end reserves, we will have another opportunity to refine our valuation estimate." Petrie Parkman & Co. advised Patina. -Bertie Taylor
Recommended Reading
Green Swan Seeks US Financing for Global Decarbonization Projects
2024-02-21 - Green Swan, an investment platform seeking to provide capital to countries signed on to the Paris Agreement, is courting U.S. investors to fund decarbonization projects in countries including Iran and Venezuela, its executives told Hart Energy.
E&P Earnings Season Proves Up Stronger Efficiencies, Profits
2024-04-04 - The 2024 outlook for E&Ps largely surprises to the upside with conservative budgets and steady volumes.
U.S. Shale-catters to IPO Australian Shale Explorer on NYSE
2024-05-04 - Tamboran Resources Corp. is majority owned by Permian wildcatter Bryan Sheffield and chaired by Haynesville and Eagle Ford discovery co-leader Dick Stoneburner.
M4E Lithium Closes Funding for Brazilian Lithium Exploration
2024-03-15 - M4E’s financing package includes an equity investment, a royalty purchase and an option for a strategic offtake agreement.
Laredo Oil Subsidiary, Erehwon Enter Into Drilling Agreement with Texakoma
2024-03-14 - The agreement with Lustre Oil and Erehwon Oil & Gas would allow Texakoma to participate in the development of 7,375 net acres of mineral rights in Valley County, Montana.