Bid Battling and Netting Natural Gas

Written By Brianna Panzica

Posted July 15, 2011

It’s becoming a summer of mergers and acquisitions for the energy industry.

Some of the most recent include Vanguard’s planned acquisition of Encore and National Oilwell Varco’s deal with Ameron.

But one of the most followed has been the back-and-forth for a Houston-based pipeline company.

Who Gets the Pipelines?

And the battle continues in the bidding for Southern Union (NYSE: SUG).

Last week, Energy Transfer Equity (NYSE: ETE) upped its initial bid for the pipeline and natural gas processing company, offering $40 per share, or $5.1 billion total.

This was just above Williams Co.’s (NYSE: WMB) last offer of $39 a share, a counterbid to Energy Transfer’s initial offer of $33 a share.

On Thursday, however, Williams topped this last bid with an offer of $44 per share, or $5.5 billion in cash, hoping to end the bidding.

Williams Co.’s CEO Alan Armstrong has expressed his confidence that the bid is the best offer Southern Union will see, as The New York Times reports.

Included in the bid is coverage for the breakup fee that Southern Union would owe Energy Transfer if they were to accept Williams’ bid. Around $1.67 of each $44 share would contribute to the fee.

Armstrong said in an interview, “We basically bought the same merger agreement as what ETE has in all respects as to the risk and responsibilities of closing.”

This includes a “hell or high water” provision that both companies have agreed to, insisting that they would complete all measures to acquire approval for the bid.

Whichever company pulls through in the end would receive the benefits of Southern Union’s 20,000 miles of pipelines, as well as their many customers.

Williams officials believe that the acquisition would improve stock prices and be good for investors of both companies.

Shares of Williams Cos closed at $29.10 on Thursday, up 31 cents, while shares of Southern Union closed at $43.42, up $1.82.

Natural Gas Nation

On Friday, Australian mining company BHP Billiton (NYSE: BHP) offered a bid of $12.1 billion in cash for oil and gas company Petrohawk (NYSE: HK), sending Petrohawk stocks up a whopping 62%.

Petrohawk operates Eagle Ford, a huge shale deposit in Texas, as well as the Haynesville shale deposit.

This offer, at about $38.75 per share, would also include nearly $3 billion in debt coverage, totaling the bid at $15.1 billion.

With this acquisition, BHP officials have expressed, the company could double its petroleum resources, and in conjunction with a recent purchase of a portion of Chesapeake Energy (NYSE: CHK), its oil-equivalent reserves will triple.

The Chesapeake deal occurred in February of this year and was worth about $4.75 billion for gas assets.

Though this bid has boosted Petrohawk by a large percentage, it also comes in the middle of a huge debate over the method of extracting shale gas.

Called hydraulic fracturing, or fracking, this method uses horizontal drilling and an injection of gallons of water mixed with sand and chemicals to break apart the rock and allow for the release of natural gas.

Environmentalists are protesting this method, making claims that the injections seep into and contaminate groundwater and drinking water deposits.

States such as New York and Maryland are facing demands for moratoria and bans on the methods, researching the effects in order to make these decisions.

Natural gas, however, could soon provide a cheap and cleaner alternative to regular gasoline.

GM and Westport are developing a natural gas-powered engine for passenger vehicles, and Clean Energy Fuels wants to expand the number of natural gas fueling stations across the country.

This would power BHP’s acquisition and allow the company to grow even more.

Research is being conducted on how to clean up the method of fracking as well, and researchers hope to make it a safe and realistic method for tapping into the U.S.’s wealth of shale deposits.

That’s all for now,


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