Occidental Petroleum Corp. is buying Altura Energy LP, Texas' biggest oil producer, from BP Amoco PLC and Shell Exploration & Production Co. for $3.6 billion in a move that will immediately boost Oxy's worldwide production by 36%.
Oxy will invest $1.2 billion cash-including proceeds of $700 million from the pending sale of its interest in Canadian Occidental Petroleum Ltd. (OGJ, Mar. 13, 2000, p. 32)-to become managing general partner for Altura. The other $500 million will be raised through the sale of various nonstrategic properties before yearend, said company officials.
The partnership is borrowing the remaining $2.4 billion, to be repaid from Altura's production with no recourse or additional debt to Oxy, officials said.
BP Amoco and Shell will retain limited preferred interests in the partnership and together will issue $2 billion in long-term notes to provide additional support for the $2.4 billion 5-year loan.
That is a conservative way to finance the transaction, "akin to credit-support deals in foreign countries," said Steve Chazen, Oxy's chief financial officer, in a Mar. 6 telephone conference with industry analysts.
A limited partnership formed in 1997 through a combination of the former Amoco Corp. and Shell properties in the Permian basin, Altura has concentrated on being a low-cost producer by maximizing production from its large CO2 enhanced recovery projects. It is the "best and biggest operator of CO2 floods," which account for half of Altura's current production, said Dale R. Laurance, president of Occidental Petroleum and CEO of Occidental Oil & Gas Corp.
Oxy will continue those CO2 operations, possibly expanding to 19 new projects. But it also plans an aggressive infill-drilling program over the next few years to reverse the decline of Altura's total production, Laurance said.
Oxy officials already have identified 50 exploitation opportunities in areas where Altura has booked 200 MMboe of proved undeveloped reserves and 280 MMboe of probable and possible reserves, said Laurance.
Under Oxy's management, Altura could drill 700-1,400 new wells in its current waterflood areas, another 300-450 wells in four CO2 flood projects, and 100 more wells in "13 pockets of reserves that have never been drilled," he said.
Altura's Permian basin properties have proved reserves totaling about 850 MMboe, with a reserve life of about 18 years. Oil and natural gas liquids account for about 95% of those reserves, with half concentrated in the Wasson and Slaughter-Levelland fields. Its 1999 total production averaged about 150,000 boe/d.
"Based on the NYMEX oil price strip, we expect this transaction to add 50¢/share to Oxy's 2000 earnings after accounting for all costs associated with the acquisition," said Ray R. Irani, Oxy's chairman and CEO. Moreover, the pending sale of the company's interest in CanOxy, announced earlier this month, will improve annual earnings by 8¢/share, he said.
BP Amoco currently has a 64% interest in the Altura partnership and Shell has a 36% interest.
In December 1998, Shell announced plans to sell its Altura interest as part of a program to restructure and upgrade its portfolio of properties. It is also selling its stake in the Shell CO2 Co. Ltd. joint venture to partner Kinder Morgan Energy Partners LP (see story, this page). BP Amoco decided to sell its Altura interest to focus on core growth areas such as the deepwater Gulf of Mexico and its natural gas operations. The transaction is expected to be completed in April.
