Demand for energy spurs acquisitions in Rockies
Associated Press
DENVER (AP) - As soon as he signs the final papers to deliver his energy company to its new owner, Mark Sexton is going out to do it all over again.
Tapping into the Rockies' vast underground resources is something that still intrigues the Evergreen Resources chief executive officer after 25 years in the business. This time, Sexton plans to keep his firm private, citing increased costs of doing business as a public company in a post-corporate accounting scandal era.
"It's really not much fun to be a publicly traded energy company right now," he said. "Public companies are less productive than private companies. … Quite honestly, a lot of executives are tired of doing penance for the sins of others."
With three companies sold already, industry observers believe others may be snapped up as larger firms angle for a foothold in the Rockies where energy development is spurred by a demand for natural gas and the Bush administration's push to develop domestic resources.
Industry observers believe the cost of regulatory compliance is another factor prompting the heads of smaller companies to sell, turn around and start anew.
"All these people will end up rejoining the chase, helping build assets in the Rockies," said Mike Bock, chairman of the banking and finance committee of the Independent Petroleum Assoc-iation of Mountain States. "It's constantly rejuvenating itself."
The Rockies are viewed as the most promising region of new natural gas development. The government estimates that Colorado, Montana, New Mexico, Utah and Wyoming contain 41 percent of the nation's gas reserves.
The U.S. Energy Administra-tion has predicted the nation's gas use will grow at least 50 percent by 2025, and production in older fields, such as the Gulf Coast, is declining.
Environmentalists and others are concerned that the energy boom could threaten vast wilderness areas. Some want the government to slow the process down.
Since April 7, three Denver companies have announced they are being acquired in multibillion-dollar transactions.
Dallas-based Pioneer Natural Resources Co. is buying Evergreen Resources Inc. for about $1.7 billion in cash and stock. Canadian energy giant EnCana Corp. is buying Tom Brown Inc. in a $2.2 billion cash deal. Kerr-McGee Corp. is buying Westport Resources Corp. in an estimated $2.4 billion stock deal.
Senior resource economist Pete Morton of the Wilderness Society is concerned about whether the new owners will honor existing agreements with landowners and communities. "It all depends on how they consolidate," he said. "The less local or regional presence tends to lead to less reason to do the right thing."
Many in the industry believe other companies are ripe for acquisition in the seller's market.
"With the continuing demand for natural gas, companies see opportunities that are out there for many years to come. I think they feel now is a good time to go after these opportunities," said Bob Gallagher, president of the New Mexico Oil and Gas Association.
Bock oversees the corporate finance group at Petrie Parkman & Co., which was an adviser on the Westport Resources and Tom Brown Inc. acquisitions.
He said the smaller firms find it more costly in time and money to comply with the Sarbanes-Oxley Act, passed in 2002 in response to corporate accounting and finance scandals.
The law is designed to make management more accountable to shareholders by requiring executives to sign off on financial statements and holding them criminally liable for inaccuracies. It also sets guidelines for board composition and function.
"It's a bigger burden on smaller companies and makes efficiencies of consolidation more apparent," Bock said.
Sexton said his company spends about $1 million a year to ensure compliance with the law. "A lot of the disclosure requirements put public companies, in my opinion, at a competitive disadvantage," he said.
