Occidental Petroleum Corp. expects its $3.6-billion acquisition of Altura Energy Ltd., a partnership owned by BP Amoco Plc and Shell Oil Co., to add 50 cents or more per share to its 2000 earnings, at early-March oil prices. Fadel Gheit, who follows the oil industry for Fahnestock & Co. in New York, said, "If this deal was made between Altura and Apache Corp., which came second in the bidding, the price of stock would be up three or four points. Unfortunately for Occidental, the market is not really giving them the benefit of the doubt. There are so many issues that involve management credibility among Wall Street people." "When the glass is half empty or half full, for Occidental, they say it is empty. For Apache, they say it is full. Apache has demonstrated they can take property, they can turn them around and they can create value," he said. "For Occidental, unfortunately, that has not been the case. But it is mildly positive. It could be significantly positive, if, obviously, we live through the current high oil price for a longer period of time." Occidental's emphasis on Altura will be different than was that of BP Amoco or Shell, Gheit said. Altura, a limited partnership formed in 1997, is a low-cost producer in the Permian Basin and is the largest oil producer in Texas. "The other two companies were looking at Altura as a cash cow. They were not investing in the property. Occidental is a little different here. They don't have bigger fish to fry, and Altura becomes its largest asset," Gheit said. Occidental will reinvest more of Altura's cash generation back into the operation, which will increase production and reserves and extend the reserve life, he added. "It's not going to double or triple the stock price for Occidental, but it's something that is unlikely to hurt it. People are taking it as almost mildly positive to neutral," Gheit said. "But I think it is positive, and it could be even better if management really gets its arm around it and really exceeds in exploiting it." Altura has proven reserves of 850 million BOE. Once the deal closes in April, Occidental's worldwide oil production will rise 36% to 417,000 bbl. per day from its 1999 average. Occidental will invest about $1.2 billion to acquire common equity in the partnership and becoming the managing general partner. The partnership will borrow $2.4 billion. Occidental chairman Ray R. Irani said that the recently announced sale of Oxy's equity interest in Canadian Occidental Petroleum for $700 million in net after-tax proceeds already raised about 60% of the $1.2 billion that Oxy will invest in Altura. The other $500 million will be funded by the sale of noncore assets by the end of the year. "This strategic acquisition not only immediately increases our earnings per share and cash flow, but will do so over a range of energy prices," said Irani. If oil prices were to drop to $19 a share, Occidental estimates that its earnings still would rise 25 cents to 30 cents a share because of the Altura acquisition. "This divestment is an integral part of our ongoing program of portfolio restructuring and upgrades," said Walter van de Vijver, Shell Exploration & Production Co. president and chief executive officer. Dick Olver, chief executive officer of BP Amoco Exploration, said the deal confirmed the value and appeal of the Altura assets. "As BP Amoco continues to restructure its portfolio, this helps focus on our core growth in areas such as gas and the deepwater Gulf of Mexico," Olver said. BP Amoco held a 64% interest in the joint venture, while Shell held 36%. Altura's daily production in 1999 averaged 198,000 bbl. of oil, 18,000 bbl. of gas liquids and 124 million cubic feet of gas per day. It has interests in 80 fields; 50% of its reserves are in two fields, the Wasson and the Slaughter/Levelland. Banking arrangements are not final, but Chase Manhattan Corp. has agreed to fund the deal. Shell and BP Amoco are exchanging notes of about $2 billion for cash, an interest on preferred stock and a limited upside kicker. Lehman Brothers was the financial advisor to Shell while CS First Boston advised BP Amoco. Concerning CanOxy, Occidental Petroleum is selling its 40.2 million shares of Canadian Occidental Petroleum Ltd. to the Calgary oil and chemical company and the Ontario Teachers' Pension Plan. Oxy will get approximately C$1.19 billion, or C$29.61 per share, for its stake in CanOxy. The price represents the average closing price of CanOxy during 20 trading days prior to the announcement. The Ontario Teachers' Pension Plan is buying about half of the 40 million CanOxy shares; CanOxy intends to cancel the shares it purchases from Oxy, reducing its outstanding common shares to 118.3 million. As part of this transaction, CanOxy will exchange its 15% interest in Block 15 in Ecuador, which Oxy operates, for its 15% interest in CXY Chemicals, a partnership that CanOxy operates. The exchange will give each company 100% of the ventures that they retain. The deal may close following a shareholder meeting on April 17. Peters & Co. advised an independent committee, which recommended the transaction. RBC Dominion Securities and Goldman, Sachs & Co. advised CanOxy. CanOxy will use its existing bank credit line to finance the share buyback. "A cash deal is easy for shareholders to evaluate and for us to execute,"' observed Vic Zaleschuk, the company's president. "All indications are that oil markets will remain quite strong for the next 12 to 24 months. Given our strong balance sheet, we are confident we can readily manage the additional borrowing and we expect to repay it very quickly." Zaleschuk considers the deal outstanding for CanOxy shareholders. "It comes at a very good time in our business cycle and allows us to aggressively pursue our growth strategy with the full support of our shareholders. I expect that we will see a significant improvement in the liquidity and performance of our shares over the coming months," he maintained. -Paula Dittrick