Occidental Petroleum Corp. agreed to buy Vintage Petroleum Inc. in a $3.52-billion cash-and-stock deal that would boost the company’s oil and natural gas production in the U.S., Middle East and Latin America, the companies said Thursday.
The proposed acquisition is the latest in a string of aggressive moves by Westwood-based Occidental, the nation’s fourth-largest oil company by market value, to cement a turnaround from years of lackluster performance -- a reversal aided richly by record energy prices.
“The acquisition looks like a good fit,” said Fadel Gheit, senior oil analyst at Oppenheimer & Co. “Occidental and most other oil companies are sitting on mounting piles of cash, but dwindling investment opportunities.”
Indeed, with U.S. oil prices settling above $60 per barrel and natural gas prices more than double year-earlier levels, profits have soared at companies that explore for and extract the valuable commodities. A small wave of consolidation has ensued as large companies sought growth through acquisition -- Chevron Corp. did so this year when it bought El Segundo’s Unocal Corp.
“We have been expecting industry consolidation to accelerate,” Gheit said. “This is a start ... expect more to come.”
Occidental would purchase its smaller rival with $20 in cash and 0.42 share of Occidental stock for each Vintage share, or $51.49 a share. Occidental also would assume about $550 million in Vintage debt and $225 million in cash.
The deal, announced after the close of regular trading, triggered a surge in Vintage shares in after-hours trading Thursday, at one point lifting the company’s stock more than $11, to $49.76 a share. In regular session trading, Vintage shares slipped 37 cents to $38.59; Occidental’s shares fell $1.97 to $74.98, and declined an additional 88 cents in after-hours trading.
Ray R. Irani, Occidental’s chairman and chief executive, called Tulsa, Okla.-based Vintage “an excellent strategic fit for Oxy.” Both companies have oil and natural gas production in California, and Vintage’s Argentina assets will go well with Occidental projects in Ecuador and Colombia, Irani said.
Occidental, a specialist in teasing more oil out of fields where production has slowed, said it hoped to double production at Vintage fields in Argentina over five years, and to boost output at Vintage’s California fields by 20% during the next few years. Occidental said it would probably sell some of Vintage’s assets in areas such as the Gulf Coast and East Texas.
The acquisition would immediately contribute to Occidental’s cash flow and earnings, the company said. Occidental would follow the transaction with a share buyback plan aimed at repurchasing 9 million of the company’s shares -- a move that would limit dilution from the Vintage acquisition for existing shareholders.
Occidental dwarfs Vintage in size. Occidental earned $2.38 billion on revenue of $6.8 billion in the first half of this year. In comparison, Vintage earned $89.6 million on revenue of $490.1 million during the same period.
Occidental has bounced back from two decades of unremarkable performance by paying down debt, making timely acquisitions and reestablishing operations in the neglected oil-fields of Libya.
The proposed Vintage purchase is expected to close in early 2006, after the necessary regulatory approvals and a vote by Vintage shareholders.