Kerr-McGee to Acquire HS Resources
Kerr-McGee Corp. said Monday that it has agreed to buy natural gas producer HS Resources Inc. of San Francisco for about $1.3 billion in cash and stock to get gas fields closer to California.
Kerr-McGee, an energy exploration company whose natural gas production has fallen, agreed to pay $66 a share, 70% in cash and 30% in stock, for HS Resources. The price is 24% more than HS Resources’ close on Friday. Oklahoma City-based Kerr-McGee also will assume about $450 million of debt in the deal.
The purchase will boost Kerr-McGee’s U.S. gas reserves by 77%. Most of HS Resources’ fields are in the Rocky Mountains of northeast Colorado, closer to West Coast markets than other U.S. gas basins, such as the Gulf of Mexico.
A power shortage has sent gas demand soaring in California, and average prices in the state are more than twice the U.S. benchmark.
Kerr-McGee has fields in the Gulf of Mexico and onshore in Oklahoma, Texas, New Mexico and Louisiana. Most of HS Resources’ reserves are in Colorado’s Denver-Julesburg basin. It also has fields in North Dakota, South Dakota and Montana as well as along the coasts of Texas and Louisiana.
The deal comes a week after Williams Cos. agreed to acquire another Rocky Mountain gas producer, Barrett Resources Corp., for about $2.5 billion. Royal Dutch/Shell Group touched off a bidding contest for Barrett with a hostile offer March 7.
HS Resources’ shares had risen 27% since the Shell bid and had more than doubled in the last year.
The stock rose $11.15 to $64.43 while Kerr-McGee fell 48 cents to $70.09, both on the New York Stock Exchange. Kerr-McGee stock had risen 5.4% this year.
With the purchase of HS Resources, Kerr-McGee will gain proven reserves equal to 1.3 trillion cubic feet of gas, at a cost of about $1.10 per thousand cubic feet. The fields may contain 500 billion cubic feet of reserves that have yet to be documented, Kerr-McGee estimated.
The company has had difficulty boosting gas production. Its daily gas sales averaged 531 million cubic feet a day last year, down 8.4% from an average of 580 million in 1999. Production was down to 512 million in the first quarter of this year.
The buyout, expected to close in the third quarter, will boost Kerr-McGee’s daily U.S. production by more than 45% and extend its U.S. gas-reserve life by two years. Reserve life is the time it would take to deplete the company’s reserves at current production rates.
California is the most lucrative market for Rocky Mountain gas because much of its power is made with the fuel.
The average price at California border points was $12.90 per million British thermal units so far this year, more than double the price on the New York Mercantile Exchange in the same period and four times the year-earlier average, according to Bloomberg Energy Service data. California prices closed at a record of $53.38 on Dec. 8.
Kerr-McGee had revenue of $4.12 billion in 2000, compared with $458.6 million for HS Resources. Kerr-McGee earned $940 million last year, while HS Resources made $60.6 million.
