Company News: EnCana agrees to buy Tom Brown for $2.7 billion

EnCana Corp., Calgary, has agreed to buy Tom Brown Inc. of Denver for $2.7 billion, which includes a tender offer of $48/share and the assumption of debt.

The deal is expected to close before June 1, and upon completion of the merger, Tom Brown will become a wholly owned EnCana subsidiary.

In other recent, downstream company news:

• BP PLC said Apr. 27 it plans to consolidate the olefins and derivatives (O&D) division of its petrochemicals business into a stand-alone operation that it will sell "in due course, possibly through an initial public offering," in the second half of next year.
• Citgo Petroleum Corp. said Apr. 26 it will move its headquarters to Houston from Tulsa, with some 700 jobs to be transferred over the next 2 years.
• ChevronTexaco Corp. reported that its wholly owned subsidiary, Caltex Singapore Private Ltd., plans to increase its equity interest in Singapore Refining Co. Pte. Ltd. (SRC) to become a 50-50 joint venture partner with Singapore Petroleum Co. Ltd. (SPC).

EnCana-Tom Brown

"Tom Brown's assets are a hand-in-glove fit with our US Rockies asset base," said Randy Eresman, EnCana's chief operating officer.

"These are high-working interest, low-decline, early-life operated properties where we believe we can apply our proven resource-play management system to grow production, reserves, and financial returns."

EnCana's acquisition of Tom Brown is expected to add 325 MMcfed of gas production, 1.2 tcf of proved gas reserves, and 2 million net undeveloped acres.

Tom Brown has identified an estimated 3,200 drilling locations on these properties.

Of the $2.7 billion acquisition total, $358 million is related to the purchase of undeveloped exploration land, certain midstream assets, and Tom Brown's Sauer Drilling Co. unit, EnCana said.

The cost per unit of proved reserves is estimated at $1.95/Mcf. Full-cycle finding and development costs, including the acquisition cost and all future development costs, to exploit the expected volume of reserves are anticipated to be $1.50/Mcf, EnCana said.

Both companies' boards unanimously approved the transaction. Tom Brown directors and senior executives said they plan to tender their shares.

Tom Brown's shareholders will be required to vote only if fewer than 90% of the company's shares is tendered.

BP spinoff

BP's new O&D business will be funded by more than half of the $13 billion operating capital in BP's petrochemicals portfolio, "giving it the scale to be a major independent player in the global petrochemicals sector," company officials said.

It will be headed by Ralph Alexander, who was named Apr. 27 chief executive of BP's petrochemicals business effective July 1.

BP will retain the balance of its petrochemicals portfolio, comprising the aromatics and acetyls businesses, which are viewed as "advantaged products" where BP has leading proprietary technology and strong positions in growing Asian markets.

BP's decision to spin off its O&D operation stems from continuing poor returns of its petrochemicals segment overall.

At strategy presentations to investors in London and New York last month, BP CEO John Browne said future investment would focus more on paraxylene, purified terephthalic acid, and acetic acid and less on olefins and derivatives, which form the bulk of BP's petrochemical operations in Europe.

"We have now concluded that divesting O&D—perhaps by means of an IPO, subject to market conditions and any necessary consents—is likely to deliver the best returns to our shareholders and to be in the best long-term interests of the O&D business itself," Browne said Apr. 27.

"Our O&D subsegment is one of the highest-quality portfolios of its kind in the petrochemicals industry. It has a global network of manufacturing sites, good technology, a fine range of products, and strong market positions. As a free-standing entity, it will be a significant competitor in its sector," said Iain Conn, current chief executive of BP Petrochemicals.

BP's O&D operations employ 7,500 people in 24 locations worldwide, chiefly in the US and Europe. Major petrochemicals sites include Grangemouth, Scotland; Lavera, France; Köln and Gelsenkirchen, Germany; and Shanghai Secco Petrochemical Co. Ltd., a 50-50 joint venture of BP and China Petrochemical Corp. US facilities include a plant at Lima, Ohio; the Chocolate Bayou facility at Alvin, Tex., and the Green Lake plant at Port Lavaca, Tex.

BP recently announced the intended sale of its linear and poly alpha olefins businesses and will consider whether to include those operations in the planned IPO of O&D.

O&D products include olefins (ethylene and propylene) and their derivatives such as acrylonitrile, polyethylene, polypropylene and solvents.

Current worldwide production capacity of BP's O&D plants is some 20 million tonnes/year out of a BP Petrochemicals total of 34.5 million tonnes.

Citgo move

"Every employee whose position is moved will be offered a job. The remaining 300 positions will remain in Tulsa," said Citgo Pres. and CEO Luis Marín in an Apr. 26 message to workers.

The move will strategically position Citgo "as a major player in our industry" and will permit it "to play a larger role in the downstream business" of its parent Petroleos de Venezuela SA (PDVSA), the national oil company of Venezuela, Marín said.

He noted that the move "will place our headquarters in close proximity to our refining operations on the Gulf Coast."

Citgo will benefit from state and local financial packages in its move to Texas, including a $5 million grant from the Texas Enterprise Fund.

In addition, Houston and Corpus Christi, Tex., will sponsor $30 million in low-interest loans for the company through the Texas Economic Development Bank and its bond program.

In return for that investment, Citgo is to add 120 jobs at its Corpus Christi refinery and invest $828 million over the next 10 years to increase the volume of gasoline produced at that facility.

Meanwhile, Citgo has not yet determined the location of its new Houston office.

Antonio Rivero, Citco's executive vice-president, is to spearhead the relocation and will work closely with managers to determine when each group will be scheduled to move, officials said.

Separation programs will be offered to those employees who choose not to move to Houston.

Citgo has been headquartered in Tulsa for 30 years.

The 300 workers to remain in Tulsa are employed by the company's product technology laboratory, warehouse, pipeline control center, tax department, benefits group, the customer service groups in light oils and lubes, the data center, some information technology operations, and part of accounting.

Caltex-SPC JV

Caltex and SPC each have agreed to acquire 50% of BP Singapore Pte. Ltd.'s (BPS) one-third equity interest in SRC, including inventories, as well as in the unincorporated JV that manages SRC.

Both firms also will acquire BPS's one-sixth equity interest in Tanker Mooring Services Co. Pte. Ltd. (TMS). At the close of this transaction, TMS will be held by Caltex and SPC, 25% each, and by Singapore-based PSA Marine (Pte.) Ltd., 50%.

Caltex and SPC each will pay about $70 million and acquire certain other rights and obligations from BPS. The transaction is expected to close June 30.