Harbour Energy Plc agreed to acquire LLOG Exploration Co. for $3.2 billion, marking the UK company’s entry into the deepwater US Gulf of Mexico.
The transaction comprises $2.7 billion in cash and $500 million of Harbour’s voting shares, it said Monday. The deal establishes another core business unit alongside Norway, the UK, Argentina and Mexico.
The London-based company, one of the largest producers in the UK North Sea, has been adding operations abroad as fields at home go into decline and the government sticks to a punishing windfall tax. Last year, the firm completed its purchase of Wintershall Dea AG assets in several regions including South America and Africa.
“We’ve had a long-held ambition” to enter the US gulf, Chief Executive Officer Linda Cook told reporters. The new assets shift the portfolio toward a more balanced oil and gas mix and “give us a lot of running room in a basin where there is a lot to play for.”
Harbour shares pared some of their early losses, but still traded down 2.9 percent as of 2:01 p.m. in London.
“The market reaction may be related to the equity issuance associated with the transaction and the perceived dilution for existing shareholders,” said Werner Riding, an analyst at Peel Hunt LLP.
Harbour Energy, whose net debt rose to $4.2 billion at the end of September, will fund the acquisition through an underwritten $1 billion bridge facility, a $1 billion term loan and existing liquidity. Following the issuance of new shares to LLOG, the US firm will own 11 percent of the British company.
‘Big Benefit’
One of the largest closely held oil and gas producers in the US Gulf, LLOG is controlled by the family of founder Gerald Boelte, who died last year. It provides “low-breakeven assets” with production of 34,000 barrels of oil equivalent a day, Harbour said in a statement.
The US company will become Harbour’s new Gulf of Mexico business unit, incorporating the LLOG name. The UK firm will be able to “leverage all the experience the LLOG team has in exploring, developing and producing” in the basin, which will be a “big benefit” over time since Harbour has important development projects off Mexico, Cook said.
The deal is expected to close late next quarter.
While the transaction gives Harbour a strong presence in the US, “the center of gravity is still going to be in Europe,” Cook said when asked about a potential US listing. Over time, however, anticipated growth in the Gulf of Mexico, Argentina and Mexico will make those regions more important.
“We’ll just continue to assess what will make the most sense to our shareholders as our portfolio continues to evolve,” she said.
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