Planning for a Large Oil Company Acquisition

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206 THIS PAPER IS SUBJECT TO CORRECTION American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc. Introduction This paper reviews the planning by R. J. Reynolds Industries and its wholly owned subsidiary, American Independent Oil Co. (Aminoil), for the acquisition of the U. S. interests of Burmah Oil Co. This acquisition which was completed at midyear last year, was made for a cash consideration of $522 m This was one of the largest cash acquisitions in U. S. corporate history. There were some 65 people involved heavily in this acquisition people involved heavily in this acquisition effort, which spanned a period in excess of 1 year and cost about $2 million for outside services alone. Following a brief description of the range of properties involved in this acquisition and the conditions under which this acquisition work was done, we shall discuss the specifications set for our approach, the scheduling of our work, the computer model developed for economic evaluation, and some of the other key ingredients that made this acquisition a successful and satisfying effort. This paper, however, will not cover the substantial petroleum engineering work — reservoir evaluation, cost and investment forecasting, risk assessment, etc. — that was fundamental to the property evaluation. SPECIFICATIONS FOR OUR APPROACH Burmah Oil Co. announced in March 1975 its intention to sell in one package the stock of two companies, Burmah Oil and Gas Co. (formerly Signal Oil and Gas Co., purchased by Burmah in Jan. 1974) and Burmah Oil Development, a company through which Burmah had invested independently some $200 million in leases and exploration offshore Louisiana and Texas. The total package of properties comprised exploration and production operations and marketing operations as follows. Exploration and Production Operations Huntington Beach field, a large and long-established producing field near Los Angeles, largely under secondary recovery, and a range of other California producing properties, particularly gas in the Sacramento area. particularly gas in the Sacramento area. Leases offshore Louisiana and Texas; some 84 blocks with an average interest of about 25 percent. Onshore Louisiana properties in partnership with John Mecom, centering on the partnership with John Mecom, centering on the established Lake Washington field.