NEW YORK -- Kerr-McGee Corp. said yesterday that it agreed to buy Oryx Energy Co., an oil exploration company, for $3.14 billion in stock and assumed debt, expanding its reserves in the rich fields of the Gulf of Mexico and North Sea.
The buyout values Oryx at $15.77 a share based on yesterday's closing stock prices, or $1.68 billion, and represents a 37 percent premium for Oryx shareholders over Wednesday's closing price of $11.50. Kerr-McGee, an oil and chemicals company, will assume $1.3 billion in debt.
The Oklahoma City company is making the acquisition as low oil and natural gas prices depress the stock of exploration companies such as Oryx.
"It's a good program for both companies," said Joseph Ancona, equity analyst with Burns Gustus & Co., who has a strong "buy" rating on both stocks. "Kerr-McGee is buying assets very cheaply, and Oryx Energy has a short-term solution for improving its share price."
Oryx has $2.1 billion in assets, including oil and gas properties in the Gulf of Mexico and the North Sea, where Kerr-McGee also has extensive holdings. That should allow Kerr-McGee to cut costs in those fields by consolidating operations, analysts said.
Kerr-McGee will eliminate an undetermined number of jobs, said Luke Corbett, chairman and chief executive of Kerr-McGee.
The company will also take unspecified charges against earnings as a result of the merger.
"We hope to get in excess of $100 million in savings" from the acquisition, Corbett said.
Oryx shares rose $3.625, to $14.8125. Kerr-McGee shares fell $4.1875, to $42.75, as investors grew concerned that assuming Oryx's $1.3 billion in debt will be too great a burden for Kerr-McGee, analysts said.
Savings will come from vacating expensive office space at Oryx's Dallas headquarters, reducing the cost of oil production in the North Sea and Gulf of Mexico, and using increased cash flow to lower borrowing costs, the companies said.
Combined, Oryx and Kerr-McGee will have oil and natural gas reserves equivalent to 1 billion barrels, mainly in the North Sea and Gulf of Mexico, complemented by an operation that makes titanium dioxide pigment, an ingredient used to make paint. Kerr-McGee also will get oil holdings in Ecuador, Australia, Algeria and Kazakstan.
While analysts see the possible cost-savings from the merger as beneficial, they say low oil prices will continue to be a problem for the new Kerr-McGee.
Falling profit is pushing oil companies of all sizes to find partners who can help them cut costs or get financing.
British Petroleum Co. plans to cut 6,000 jobs after a $61 billion buyout of Amoco Corp., announced in August, is completed. The acquisition would be the largest ever in the oil industry.
The Kerr-McGee transaction is expected to start adding to earnings and cash flow in 1999, excluding a one-time, undisclosed charge associated with the purchase.
The combined company will have 4,400 employees worldwide. Corbett will be chief executive, and Robert Keiser, chairman and chief executive of Oryx, will be chairman.
Pub Date: 10/16/98