The nation’s four largest oil and natural-gas producers are household names – energy giants BP, ConocoPhillips, Exxon Mobil and Chevron.
The No. 5 producer – Anadarko Petroleum – is less well known. But perhaps not for long.
In August, Houston-based Anadarko completed its purchase of two energy producers with big Colorado operations: Oklahoma City-based Kerr-McGee in an $18 billion transaction and Denver based Western Gas Resources in a $5.3 billion deal.
Overnight, Anadarko became the biggest oil and gas firm in the Rocky Mountains.
“We will execute a strong program in the Rockies,” said Mike Bridges, who will run Anadarko’s expanded Wyoming operations. “We’ll work to keep costs down and use technology to extract more out of the ground – increasing recovery.”
Since the acquisitions, Anadarko has moved quickly in a complex effort to integrate the two acquired companies. Those efforts include:
- Naming two senior energy-industry executives to manage its new Colorado and Wyoming holdings.
- In addition to Bridges’ appointment as vice president of operations in the northern Rockies, Anadarko has named Jim Kleckner, a veteran of Kerr-McGee, as vice president in charge of southern Rockies operations, primarily Colorado.
- Adding at least 60 new positions in Denver as the company moved the majority of its previous Rocky Mountain operations group from Houston to Colorado, while eliminating just a handful of top executives from Western Gas and Kerr-McGee.
- Capitalizing on its previous experience with challenging “tight gas” geologic formations to handle similar formations in its newly acquired natural-gas fields.
But the complete integration of the three firms is viewed by analysts as a big challenge that could take years to fully assimilate.
The acquisitions increased Anadarko’s oil and gas production by 66 percent and grew its proved reserves by 41 percent, making Anadarko the nation’s largest independent energy firm, without retail operations.
But it also raised questions from financial analysts, environmentalists and employees. Did Anadarko pay too much? In its zeal for profits, will it ride roughshod over the West’s fragile ecosystems? Will post-merger streamlining lead to deeper job cuts?
Anadarko offers an emphatic “no” to each question.
On the $23.3 billion acquisition price tag:
“I think we certainly got what we paid for,” said Bridges, who will work out of a Denver office. “In terms of both the assets and the people we got, I think it’s a good deal with a lot of upside potential.”
Analysts have said that the 49 percent premium Anadarko paid over the stock price of Western Gas and the 40 percent premium for Kerr-McGee were considerable, especially when natural-gas prices in the West plummeted to less than $2 per thousand cubic feet, the lowest level in more than three years, shortly after Anadarko completed the transactions.
“They paid an expensive price,” said Tom Covington, a Denver-based energy analyst with A.G. Edwards. “But if you hold the view that gas is going to be trading in the $6-$8 range, then it was a fair price.”
Rocky Mountain natural gas last week was priced about $6.
On post-merger streamlining and jobs:
Anadarko maintains that despite an unspecified handful of job cuts, its Rocky Mountain region is hiring geologists, engineers and other professionals.
“Contrary to concerns initially of layoffs, primarily the only staff reductions were senior executive teams. You don’t need three sets of CEOs and COOs,” said Kleckner.
Anadarko said its regional workforce now totals 1,640, higher than the combined 1,445 employment of Western Gas and Kerr-McGee. About 680 of the workers are based in Denver, making Anadarko a major local and regional employer.
On environmental issues:
Anadarko officials say environmental stewardship is a core value of the company.
The company gets mixed reviews from environmental groups.
“Western Gas was a pretty progressive company and made several good commitments to protect the environment – for example, reducing air pollution from compressor stations. To my knowledge, Anadarko does not have a good reputation for being a progressive company,” said Pete Morton, a Denver-based resource economist with The Wilderness Society.
Wyoming environmentalist Jill Morrison holds an opposite view.
She noted that in Anadarko’s premerger coal-bed methane production in Wyoming’s Powder River Basin, the company was proactive in building a 48-mile pipeline to transport water produced from drilling and inject it into underground aquifers. She said Western Gas often had problems disposing of discharged water.
“It’s too early to tell how Anadarko will handle the combined companies,” said Morrison, a community organizer with the Powder River Basin Resource Council. “But they know what the problems are, and we’ll be watching to see how they respond.”
Financial analysts will be watching to see how smoothly Anadarko can integrate the operations of Western Gas and Kerr-McGee.
“Trying to fold in two companies will likely present logistical nightmares for Anadarko,” Wachovia Capital Markets analyst David Tameron said in a recent report. “The successful integration is the biggest risk for shareholders, in our opinion.”
Anadarko shares have fallen from a 52-week high of $56.71 in April, before the acquisitions were announced, to a low of $41.09 earlier this month. The shares have since rebounded, closing Friday at $46.52.
Despite questions about integration, the combined companies offer formidable statistical strength.
Anadarko’s annual natural-gas and oil production in the Rocky Mountains is equivalent to 438 billion cubic feet – enough to supply every home in Colorado, Utah, New Mexico, Wyoming, Montana, North Dakota, South Dakota and Idaho.
Its estimated total gas resource in the Rockies is 21 trillion cubic feet. That would supply every household in Colorado for 150 years.
While Kerr-McGee’s historic roots are in Oklahoma, Anadarko’s acquisition of Western Gas Resources was the latest in a slew of Colorado companies to be swallowed in an $18 billion corporate buyout spree of energy companies.
As natural-gas production has begun to decline in mature fields in the southern U.S., the Rockies are expected to pick up the slack. The Energy Department estimated that gas production in 2006 will be 4.18 trillion cubic feet in the Rocky Mountains, 4.11 trillion for Gulf of Mexico offshore and 4.11 trillion for the Gulf Coast onshore area.
That has made Rockies gas fields a prime target for firms looking to bolster their reserves and production.
Anadarko’s plan is to make the Rocky Mountains a bigger part of its reserves and production, most of which previously was focused in Texas, Oklahoma, Louisiana and the Gulf of Mexico.
Anadarko brings a trump card to deal. Much of its southern U.S. portfolio is “tight gas” in geologic structures that require special drilling and fracturing techniques to unlock the gas from dense sandstone formations.
Those are similar to Kerr-McGee’s and Western Gas’ tight gas properties, analysts and company officials say, giving Anadarko a technological head start in operating and growing the Rockies acquisitions.
Staff writer Steve Raabe can be reached at 303-954-1948 or sraabe@denverpost.com.
Anadarko at a glance
Headquarters: Houston
News: Acquired Western Gas Resources and Kerr-McGee in August for $23.3 billion in a Rocky Mountain expansion.
Rockies gas ownership: Estimated total resource of 21 trillion cubic feet, enough to supply every household in Colorado for 150 years.
Chief executive officer: James Hackett, whose 2005 total compensation was $7.7 million.
2005 revenue: $7.1 billion
2005 net income: $2.5 billion
Employees: 3,300
Oil and gas production: 64 percent from U.S., 18 percent from Algeria, 13 percent from Canada, 5 percent from other countries.
Of note: For 24 consecutive years has more than replaced annual production with new reserves.
History: Formed in 1959 as a subsidiary of the Panhandle Eastern Pipe Line Co. and named after the Anadarko Basin in Oklahoma and Texas. Spun off by Panhandle in 1986. Systematically grew reserves and production along the Gulf of Mexico and in Algeria. Doubled reserves in 2000 by acquiring Union Pacific Resources for $5.7 billion.
