Norway's Norsk Hydro to Buy Spinnaker

Norwegian energy and aluminum group Norsk Hydro (search) has agreed to buy Spinnaker Exploration Co. (SKE) for $2.45 billion in cash to expand oil and gas output and add potential for new discoveries, it said on Monday.

Hydro offered $65.5 per share, a 34 percent premium over Houston-based Spinnaker's Friday closing price of $48.75. It would pay $2.45 billion in cash for the shares and assume $110 million in debt.

Hydro Chief Executive Eivind Reiten called the acquisition, which would add total reserves of 129 million barrels, "a very important step in our growth strategy."

"We are primarily buying an exploration company -- with huge exploration area compared to the actual production," Reiten told Reuters. "That is deepwater which is complementary to what we have already (in the Gulf of Mexico)."

Kjetil Solbraekke, Hydro's head of international business development, told a conference call: "Altogether, this brings us to within the 10 largest license-holders in the Gulf of Mexico (search)."

The takeover would bring holdings in 350 licenses, including a quarter of the Front Runner field already in production. Spinnaker now produces 23,000 barrels of oil equivalent per day, which is due roughly to double to 50,000 boed by 2008.

Hydro's current total output is around 575,000 boed, most of it from off Norway and a tenth from international fields.

Flush with cash with oil prices above $60 a barrel, the Norwegian company said the takeover of Spinnaker had been approved by the boards of both companies and Spinnaker's biggest shareholder. It aimed to close the deal in the fourth quarter.

"This transaction allows Spinnaker Exploration shareholders to realize substantial and immediate value at an attractive premium," Spinnaker Chairman and Chief Executive Roger Jarvis said in a statement.

Some analysts said the deal looked expensive in comparison with Norwegian state-controlled Statoil's $2 billion purchase of the U.S. Gulf oil interests of Canada's EnCana Corp (ECA), which was announced in April.

But Hydro shares recovered from an early dip to end up 1.0 percent at 736.50 crowns after setting a new all-time peak of 738.50 set during the session. Spinnaker shares jumped 32.6 percent to $64.65 in New York, hovering $0.85 below the bid.

The price appeared to be three times what Statoil paid for EnCana's assets, on a per proved plus probable barrel of resources, said Angus McPhail, oil analyst at ING.

However, McPhail said this could be justified by what appeared to be greater exploration potential, not least because the deal included a three-dimensional seismic database which could prove valuable.

"It would have been good for them to quantify the possible reserves they hope to find," McPhail added.

DnB NOR Markets analyst Bjoern Inge Toennessen said: "It's not cheap -- that's for sure. But I think it is good that they are going to be aggressive."

Reiten said the acquisition would contribute to earnings per share and cashflow from day one and said the company was assuming a long-term oil price in the mid-$30s a barrel.

In the near term, Hydro would hedge Spinnaker's production to lock-in value based on current forward prices, he said.

Hydro said it expected annual production growth for its international oil and gas business of 40 percent between 2005 and 2008 following the purchase.

Most of Spinnaker's exploration is in the U.S. Gulf but it also has a stake in one block off Nigeria, Hydro said. Spinnaker has 80 employees in Houston.

Hydro said that it expected to complete the transaction in the fourth quarter of 2005. "We need regulatory clearance which we do not expect to be a problem," Reiten said.