Arco to Pay $3.3 Billion for Oil Explorer Union Texas
Sharply boosting its international presence, Atlantic Richfield Co. agreed to buy Union Texas Petroleum Holdings Inc. for $3.3 billion in cash and assumed debt, the companies said Monday. Union Texas, based in Houston, is a large independent oil firm that explores for oil and gas overseas.
With this transaction, which has been in the works for about two months, Arco will immediately increase daily oil and gas production by about 15% and boost international production to 32% from 23%, the Los Angeles-based oil giant said. Many U.S. oil companies have been shifting their focus internationally as U.S. reserves become more difficult to find and more expensive to extract.
“This is great news, a great acquisition for Arco, at a perfect time in our company’s history,” Mike R. Bowlin, Arco chairman and chief executive, told shareholders at the company’s annual meeting Monday.
Arco was attracted to Union Texas because most of its oil and gas holdings lie near areas where Arco already is exploring, making it possible eventually to slice $85 million a year in costs by using fewer people and less equipment, Arco said.
Layoffs are inevitable--Arco is closing Union Texas’ 300-employee headquarters in Houston and consolidating other operations--but Arco executives declined to be specific about the extent of the job losses. Union Texas employs 1,400 people worldwide and Arco employs about 24,000.
Analysts praised the acquisition, in which Arco would pay $29 per share, or $2.47 billion in cash, plus the assumption of about $800 million in debt and preferred stock to acquire Union Texas. The purchase would add 573 million barrels of proven reserves at about $5.76 per barrel when production costs are figured in.
“It’s just a good strategic fit for the company,” adding production in Britain’s North Sea, Indonesia, Venezuela and Alaska, where Arco already owns properties, said Bruce Lanni, an analyst with CIBC Oppenheimer & Co. “You couldn’t find a better acquisition in the oil and gas business right now.”
Arco will continue to look for acquisition opportunities overseas, Bowlin said. The purchase of Union Texas, approved by the boards of both companies, should add to cash flow in the first year and should “modestly” reduce earnings through 1999, he said.
Arco’s stock price slipped $1.13 per share to close at $79.31 on the New York Stock Exchange, while Union Texas jumped $8 to $28.50. Union Texas posted 1997 net income of $136 million on revenue of $933 million, compared with Arco’s 1997 net income of $1.8 billion on revenue of $19.3 billion.
At the annual meeting, Arco also dealt with issues involving Myanmar. Outside the downtown Los Angeles headquarters of Arco’s products subsidiary, where the meeting was held, protesters demonstrated against Arco’s offshore gas-drilling venture in Myanmar, formerly Burma. Some 80 protesters began a three-day fast Sunday to urge Arco to abandon the project, which so far is unprofitable.
Shareholder resolutions directing Arco to pull out of Myanmar and to research that government’s alleged involvement in drug trafficking were defeated. Another shareholder resolution calling for Arco to abandon controversial “soft money” political contributions, the sort of unrestricted donations that were central to fund-raising abuses in the 1996 elections, was also defeated.
Arco President William E. Wade Jr. told protesters during the meeting that he has thoroughly researched the company’s Myanmar venture and has concluded that it ultimately would benefit the Myanmar people by bringing jobs and responsible corporate policies to the country.
