By Erin Ailworth
Noble Energy Inc.'s $2.1 billion deal to buy smaller rival
Rosetta Resources Inc. sets a new benchmark for future oil-patch
acquisitions.
The deal, which the companies are calling a merger, is the first
involving a sizable U.S. energy producer following last year's
downtown in oil prices.
Until now would-be buyers and sellers have been at an impasse,
unable to agree on what oil and gas fields are worth. That is
because crude-oil prices fell so far so fast in recent months,
plunging from more than $100 a barrel last June to less than $45 a
barrel in March.
The volatility paralyzed mergers and acquisitions in much of the
energy sector. But Noble's bid for Rosetta, an active driller in
Texas, coupled with U.S. oil prices rebounding to around $60 a
barrel shows that disconnect may be disappearing, analysts
said.
Companies that have toyed with the idea of buying smaller rivals
or picking up oil fields on the cheap may finally be ready to move,
said Keith King, managing director at Moyes & Co. Inc., an
energy advisory firm in Houston.
"You can't help but think there's a lot of people in board rooms
right now wondering when they should pull the trigger," Mr. King
said.
Under the terms of the transaction, Noble, which has a market
value of $19 billion, will acquire Rosetta in an all-stock deal and
assume $1.8 billion in net debt. Rosetta's shareholders will
receive 0.542 of a Noble share for each Rosetta share they hold.
They will own roughly 9.6% of Noble shares following deal's close,
expected sometime this fall.
Rosetta's stock closed below $20 a share Friday before news of
the deal. Noble's offer gives Rosetta shareholders a 28% premium
over where shares traded over the last 30 days, the companies
said.
Rosetta was spun off from Calpine Corp., a major electricity
producer, in July 2005 and began trading on the Nasdaq seven months
later. Before focusing on drilling for oil in the Eagle Ford and
Permian, the company originally operated in other parts of south
Texas, California, the Rocky Mountains and the Gulf of Mexico.
Rosetta faced headwinds going into the deal, including a loss of
$539.7 million in net income last quarter, and more debt than its
nearly $1.5 billion market value.
Even though Noble is based in Houston, the company hasn't been
an active shale driller in Texas. Buying Rosetta will give it more
than 100,000 net acres of oil-producing land across the state, said
Dave Stover, chief executive of Noble.
For years Noble has pumped oil and gas in Colorado's DJ Basin
and in the Marcellus Shale, which spans several states in the
Northeast. Now Noble will have drilling and fracking operations in
Texas' Eagle Ford Shale and Permian Basin--two of the most prolific
oil-pumping regions in the U.S.
"We had our eye on this one for a while," Mr. Stover said of
acquiring Rosetta. "It's a good solid position to start in each
basin."
Such a deal might not have been possible a year ago. At the
time, smaller energy stocks like Rosetta were more expensive and
their boards would have insisted on a hefty premium over the share
price. That would have made it much harder for Noble to buy
Rosetta, which traded over $50 a share last summer.
Rosetta's Chief Executive Jim Craddock told The Wall Street
Journal that the company isn't in dire straits. Rosetta issued more
than $200 million worth of equity in March, improving its balance
sheet and increasing its bargaining position, and recently had its
$950 million borrowing base reaffirmed.
But Standard & Poor's Ratings Services was still considering
downgrading Rosetta and ultimately the company's management team
agreed that selling was its best option.
"We're not in a position where we are in a bind or need to do
this, but we like the efficiency it brings to the table, the fact
that it puts us together with another really strong player," Mr.
Craddock said.
The transaction could spur some U.S. oil producers to strike
deals, but Irene Haas, an analyst at Wunderlich Securities Inc.,
said it isn't likely to spark a frenzy of mergers and acquisitions
across the industry.
"We've been asked if there's going to be an onslaught, a tsunami
of deals," she said. "We don't see that."
There have been other energy transactions: petroleum giant Royal
Dutch Shell PLC recently agreed to buy Britain's BG Group PLC, and
oil-field service rivals Halliburton Co. and Baker Hughes Inc. have
announced their plans to merge.
Daniel Gilbert contributed to this article.
Write to Erin Ailworth at Erin.Ailworth@wsj.com
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