Williams to buy Barrett Resources for $2.8 billion, topping Shell’s bid

Williams, Tulsa, Monday announced an agreement to acquire Barrett Resources Corp., Denver, Colo., for $2.8 billion in a deal that will more than double Williams’ natural gas reserves.

Williams anticipates ramping up its gas-fired power generation in coming years. The Williams-Barrett deal was disclosed last week after analysts mistakenly were included in a conference call, during which Williams board members discussed a Barrett offer.

Shell Oil Co. had made a $2 billion hostile bid for Barrett (OGJ Online, May 2, 2001). Barrett put itself on the auction block after Shell announced its offer in March.

Shell said it has elected to discontinue its efforts to purchase Barrett because of its unwillingness to increase its offer “beyond a level that makes economic sense to Shell.”

The boards of Williams and Barrett have approved the merger, which calls for a first-step cash tender offer of $73/share for 50% of the outstanding Barrett common stock, followed by a second-step merger with a fixed exchange ratio of 1.767/shares of Williams common stock for each remaining share of Barrett common stock.

The merger agreement also calls for a termination fee of $75.5 million and reimbursement of expenses to Williams of up to $15 million. The $2.8 billion deal includes $300 million of Barrett debt and is the equivalent of $1.34/Mcf of proved reserves.

The transaction, contingent on approval from antitrust regulators and shareholders, could be completed in 90 days.

Keith E. Bailey, Williams’ chairman, president and CEO, told analysts in a conference call the transaction is contingent on getting 50% of Barrett stock during the tender offer.

Steven J. Malcolm, executive vice-president of Williams and president of Williams Energy Services, said Barrett provides “the opportunity to achieve better balance in our natural gas/power portfolio and underpin our ability to continue to profitably grow our power business while maintaining a risk profile.”

Williams has the goal of developing 15,000 Mw of power generation by the end of 2003 and 40,000 Mw of power generation by the end of 2005, executives confirmed during the conference call.

Bailey said the additional gas production will provide Williams with a physical hedge to reduce gas price risk.

Barrett has drilling prospects and core areas for exploration, including the Piceance, Powder River, Wind River, and Raton basins, Malcolm said. He added Williams has substantial production operations in the Green River and San Juan basins in the Rockies.

He also said Williams plans to retain most of Barrett’s 237 employees and maintain Barrett’s Denver headquarters as Williams’ principal office for Rocky Mountain exploration and production operations.

At year-end 2000, Williams had 1.2 tcf equivalent of proved gas reserves. At Mar. 31, Barrett’s proved reserves were 2.1 tcf equivalent.

Williams produces 210 MMcfd; Barrett produces about 345 MMcfd equivalent. The combination would allow Williams to achieve the goal of doubling reserves and production more than 2 years ahead of the yearend 2003 target in its strategic plan. Measured by US natural gas reserves, Williams would advance from the 25th to the 10th largest company.

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