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Occidental nears $3.5B buy
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February 14, 2000: 6:48 a.m. ET
U.S. oil firm to acquire Altura from BP and Shell, industry source says
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LONDON (CNNfn) - Occidental Petroleum appeared Monday to have snagged U.S. oil and gas explorer Altura Energy Ltd. in a deal valued at more than $3.5 billion, a person familiar with the matter told CNNfn.com.
The largest oil producer in Texas, Altura is owned by BP Amoco and Royal Dutch/Shell. After deciding to focus their energies more on overseas oil exploration, the two European companies conducted an auction for the venture that ended Jan. 31
While neither selling company would confirm Monday that they had reached any agreement on the sale, a person familiar with the situation acknowledged that it seemed likely that Occidental (OXY: Research, Estimates) would win the bidding contest.
The source could not specify when the offer might formally be approved and the selling companies declined to elaborate on their timetable.
"These are still being considered by the owner," A BP Amoco spokesman said, confirming the companies had received several bids for Altura. BP Amoco, which is selling several assets as part of a sweeping effort to improve its return on capital, owns 64 percent of Altura. Shell owns the remainder.
Occidental hopes Altura will fuel growth
For Occidental, the addition of Altura would provide a significant boost to the company's oil and gas exploration business, which has been scaled back in recent months as the company worked to remove an enormous debt load from its books.
In 1998, the most recent year for which complete figures are available, oil and gas exploration and production accounted for about 55 percent of the Los Angeles-based company's $6.6 billion in sales in 1998. The rest of the company's business is generated from sales of basic chemicals, petrochemicals and plastics.
But even as Occidental inched closer to acquiring Altura, some industry analysts and experts questioned the value of such a deal.
The Altura operation, already the biggest oil and natural-gas producer in the Permian Basin area of west Texas and eastern New Mexico, is considered a mature oil field among industry observers and some analysts said they believe the region's oil production is in decline.
"I'm not that close to that deal, but a lot of it will depend on how Occidental is able to manage it," said Scott Johnson, co-founder of Weisser Johnson & Co., a financing and merger advisory firm for energy companies. "The Permian is a relatively mature basin and in order to run it efficiently, you really need to adopt an independent company mentality of doing business.
"By that I mean you need to adopt a lower overhead and operating structure."
Occidental has been working to clean up its balance sheet for more than a year now, aided in large part by a hefty $775 million settlement from a lawsuit filed against Chevron Corp. over a failed takeover attempt in the early 1980s.
But analysts caution the company still carries a debt-to-revenue ratio too high for many people's taste, putting greater pressure on it to make the Altura purchase work.
"There's not a lot of information out there on Altura's production, so it's hard to judge," said Matthew Warburton, an industry analyst with Warburg Dillon Read. "The selling party has not really had much success with that basin over the last couple of years. So if the deal costs them $2 a barrel, it's a good deal. If it's $7 a barrel, it's not a great move."
The Wall Street Journal, which first reported Occidental was selected to buy Altura, reported Monday that Altura produced 110,000 barrels of oil, 125 million cubic feet of natural gas and 18,000 barrels of natural-gas liquids a day.
If that's accurate, the Altura purchase would expand Occidental's crude-oil production by 37 percent to 407,000 barrels a day, the Journal said. 
-- from staff and wire reports
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