Hunting Regulatory News (HTG)

6 Aug 2008 07:00



Hunting PLC

("Hunting" or "the Company" or "the Group")

Proposed Disposal of Gibson Energy

Hunting PLC (LSE:HTG), the international energy services group, announces the Proposed Disposal of Gibson Energy, its midstream oil and gas group based in Alberta, Canada, to 1413281 Alberta ULC, a company formed for the purposes of the Disposal and ultimately owned by the Riverstone/Carlyle Global Energy and Power Funds, a group of energy focused private equity funds managed by Riverstone. The transaction is subject to shareholder approval and certain regulatory clearances.

Transaction Highlights

The total consideration for Gibson Energy is CAN$1,270 million (approximately £626 million), subject to the Adjustments. The total consideration includes payment for the net working capital in the Gibson Energy Group as at Completion, which is estimated to be CAN$170 million (approximately £84 million); 

The total consideration represents a multiple of 13x Gibson Energy's profit from operations in 2007. Hunting will record a profit on Disposal of approximately £305 million in the current year;

The Purchaser has paid a deposit of CAN$100 million (approximately £49 million) and the balance of the total consideration is payable in cash on Completion, subject to the Adjustments and subject to the receipt of an appropriate tax certificate from the Minister of National Revenue in Canada;

Following Completion, the Continuing Group's operations will be focused on the Hunting Energy Services division, the vertically integrated supplier of well construction and well completion equipment, exploration and production services and petrochemical equipment. Hunting Energy Services has been the fastest growing division of the Group, recording 57 per cent. compounded annual growth in profit from operations over the last five years;

The net proceeds from the Disposal will be used to invest in Hunting Energy Services, make earnings enhancing acquisitions and to eliminate net borrowings. The Board remains committed to pursuing an efficient capital structure for the Group and will continue to review its strategy in this regard in the context of the available acquisition opportunities; and

The Proposed Disposal is conditional upon, inter alia, Hunting obtaining the approval of its Shareholders at the EGM which will be held at 10.00a.m on 26 August 2008 and obtaining certain North American regulatory clearances.

  Commenting on the Proposed Disposal of Gibson Energy, Dennis Proctor, Chief Executive Officer of Hunting said:

"Gibson Energy has grown to be the largest independent midstream energy company in Canada and has added significant shareholder value. We believe that now is the right time to dispose of the business and the consideration fairly reflects the value in the business. Its disposal comes at a point in the Company's development where we believe resources dedicated towards our upstream, technology-driven, Hunting Energy Services division will enhance shareholder value beyond the potential of the combined entity. Further, we are confident that earnings enhancing acquisitions and further organic growth can be achieved to expand the Continuing Group within a reasonable time frame. With Hunting Energy Services' global footprint, there are significant opportunities for acquisitions and regional expansion. Discussions are currently underway with several targets which, if successful, will enhance the existing platforms or expand capacity."

A Circular containing further details relating to the Proposed Disposal and the convening of the Extraordinary General Meeting is being posted to Shareholders today.

Newswire conference call and analyst call

The management of Hunting will be hosting a newswire conference call today commencing at 8.00a.m. (BST) to discuss today's announcement.

In addition, a further conference call with investment analysts will be held today at 9:00a.m. (BST).

Dial in details for both calls can be obtained from Buchanan Communications and a presentation accompanying these calls is now available at www.hunting.plc.uk and www.buchanan.uk.com. 

For further information please contact:

Notes to Editors:

About Hunting PLC

Hunting PLC is an international energy services provider to the world's leading oil and gas companies in the upstream and midstream sectors. Established in 1874, it is a fully listed public company traded on the London Stock Exchange. The Company maintains a corporate office in Houston and is headquartered in London. As well as the United Kingdom, the Company has principal operations in Canada, China, France, Holland, Hong Kong, Singapore, United Arab Emirates and the United States of America.

About Hunting Energy Services

Hunting Energy Services is a global provider of upstream oil and gas equipment. Sales and service operations are located in the major oil centres of the world including 20 company owned facilities and a network of more than 60 licensed partners. The division has approximately 1,500 employees under four business platforms: well construction, well completion, exploration and production and Hunting Energy France, a provider of petrochemical equipment.

For the year ended 31 December 2007, Hunting Energy Services produced revenue of £314.5 million and profit from operations of £50.4 million.

About Gibson Energy

Gibson Energy is a leader in the movement of oil and gas in Canada, offering transportation, marketing, processing and storage of hydrocarbons. Gibson Energy owns and operates 11 oil and 49 propane distribution terminals, a natural gas liquid fractionation plant for independent producers, 290 miles of pipelines, 3.4 million barrels of tank storage and operates a fleet of over 1,180 trailers moving over 205 million barrels of crude oil, gas and other energy products through its facilities annually. Gibson Energy also owns Moose Jaw Refinery, which processes approximately 3.9 million barrels of heavy crude each year.

For the year ended 31 December 2007, the Gibson Energy Group produced revenue of £1,550.8 million and profit from operations of £48.4 million.

Hunting PLC

("Hunting" or "the Company" or "the Group")

Proposed Disposal of Gibson Energy

Introduction

Hunting has entered into a conditional agreement to dispose of Gibson Energy to the Purchaser for a total consideration of CAN$1,270 million (approximately £626 million), subject to the Adjustments. The total consideration includes payment for the net working capital in the Gibson Energy Group as at Completion, which is estimated to be CAN$170 million (approximately £84 million).

The Purchaser has paid a deposit of CAN$100 million (approximately £49 million) and the balance of the total consideration is payable in cash on Completion, subject to the Adjustments and receipt of an appropriate tax certificate from the Minister of National Revenue in Canada.

Gibson Energy is focused on the movement of oil and gas in Canada, offering transportation, marketing, processing and storage of oil and gas and the Board believes the Proposed Disposal represents a compelling opportunity for the Company to crystallise value from this division. Following the Proposed Disposal, the Continuing Group will principally comprise Hunting Energy Services, a vertically integrated supplier of well construction and well completion equipment, exploration and production services and petrochemical equipment. 

Due to the size of the Proposed Disposal relative to the size of the Company, the Proposed Disposal constitutes a Class 1 transaction under the Listing Rules and as such Completion is conditional upon, amongst other things, the approval of Shareholders.

The Board is committed to growing its core operations in Hunting Energy Services. Accordingly, the Board expects that the net proceeds from the Disposal will be used to invest in Hunting Energy Services, make earnings enhancing acquisitions and to eliminate net borrowings. The Board remains committed to pursuing an efficient capital structure for the Group and will continue to review its strategy in this regard in the context of the available acquisition opportunities.

Pursuant to the Disposal Agreement, Completion is required to take place on the first business day of the calendar month immediately following the calendar month in which, amongst other things, the conditions to Completion are satisfied or waived. Completion of the Disposal is expected to take place on 1 October 2008.

Background to, and reasons for, the Disposal

Following a thorough review of the Group's strategy, the Board concluded that there is limited strategic rationale for Hunting Energy Services and Gibson Energy being part of the same group. The Board concluded that the value of the Group does not fully reflect the aggregate value of the constituent parts of the Group and that significant shareholder value would be generated by disposing of Gibson Energy. Accordingly, the Board appointed advisers to manage a competitive process that has culminated in the Proposed Disposal.

The Board believes that the consideration for Gibson Energy fairly reflects the prospects of Gibson Energy's business and that the Proposed Disposal will benefit both Hunting and its Shareholders by providing Hunting with the finance to continue to invest in and to take advantage of the opportunities within the Continuing Group's Hunting Energy Services division.

Information on Gibson Energy

Gibson Energy is a leader in the movement of oil and gas in Canada, offering transportation, marketing processing and storage of hydro-carbons. Gibson Energy owns and operates 11 oil and 49 propane distribution terminals, a natural gas liquid fractionation plant for independent producers, 290 miles of pipelines, 3.4 million barrels of tank storage and operates a fleet of over 1,180 trailers moving over 205 million barrels of crude oil, gas and other energy products through its facilities annually. Gibson Energy also owns Moose Jaw Refinery, which processes approximately 3.9 million barrels of heavy crude each year.

In the financial year ended 31 December 2007, the Gibson Energy Group generated profit from operations of £48.4 million on revenue of £1,550.8 million. The gross assets of the Gibson Energy Group, as at 31 December 2007 were £496.4 million.

The numbers set out above have been extracted without material adjustment from the consolidation schedules which support the audited financial statements for the Hunting Group for the year ended 31 December 2007.

Information on the Purchaser

The Purchaser, 1413281 Alberta ULC, is a company formed for the purposes of the Disposal and ultimately owned by the Riverstone/Carlyle Global Energy and Power Funds, a group of energy focused private equity funds managed by Riverstone. Riverstone is a New York-based energy and power focused private equity firm founded in 2000 with approximately US$14.8 billion under management. Riverstone conducts buyout and growth capital investments in the midstream, upstream, power, oilfield services and renewable sectors of the energy industry. To date, the firm has committed more than US$8.5 billion to more than 50 investments across these five sectors.

Terry Gomke, the President and Chief Executive of Gibson Energy, is expected to have an ongoing role with Gibson Energy under the ownership of the Purchaser and has not, as a result, participated in the Board's recommendation of the Proposed Disposal. It is expected that the Gibson Energy management team led by Terry Gomke will be offered an equity participation in the Purchaser's investment structure. The amount of equity offered to the management team has yet to be agreed, however the Purchaser has confirmed that the level of the management team's participation will be such that they are not classified as a related party under the Listing Rules for the purposes of the Disposal.

Principal terms and conditions of the Proposed Disposal

Under the terms of the Disposal Agreement, the total consideration for the Disposal is CAN$1,270 million (approximately £626 million), subject to the Adjustments. The total consideration includes payment for the net working capital in the Gibson Energy Group as at Completion, which is estimated to be CAN$170 million (approximately £84 million). The Purchaser has paid a deposit of CAN$100 million (approximately £49 million) and the balance of the total consideration is payable in cash on Completion, subject to the Adjustments and subject to the receipt of an appropriate tax certificate from the Minister of National Revenue in Canada at or prior to Completion. Should Hunting Energy Holdings not receive an appropriate tax certificate by such date, an amount equal to 25 per cent. of the purchase price (prior to the Adjustments) will be paid by the Purchaser to an escrow agent to hold in trust in an interest bearing account pending receipt of an appropriate tax certificate from the Minister of National Revenue in Canada.

The Disposal Agreement contains certain representations, warranties and indemnities given by Hunting Energy Holdings to the Purchaser. 

The Proposed Disposal is conditional upon, inter alia, Hunting obtaining the approval of its Shareholders at the EGM, Canada Transportation Act Approval, Investment Canada Act Approval, Canadian Competition Clearance and any required waiting period under the Hart-Scott-Rodino anti-trust legislation in the United States having expired or having been terminated. Pursuant to the Disposal Agreement, Completion is required to take place on the first business day of the calendar month immediately following the calendar month in which, amongst other things, the conditions to Completion are satisfied or waived. Completion is expected to take place on 1 October 2008.

The Disposal Agreement may be terminated prior to Completion by Hunting Energy Holdings or the Purchaser in certain circumstances, including the following:

by either Hunting Energy Holdings or the Purchaser if the Resolution is not approved by Shareholders at the EGM. In these circumstances, the deposit, together with all interest accrued thereon, would be returned to the Purchaser and in addition, Hunting Energy Holdings will be required to pay a break fee to the Purchaser of an amount equal to 1 per cent. of Hunting's market capitalisation (in US dollars) as at close of business on 5 August 2008, provided that the amount of such break fee shall not exceed US$30 million;

by Hunting Energy Holdings if, amongst other things, the Purchaser (i) breaches its representations and warranties or material covenants under the Disposal Agreement in any material respect and such breach is not remedied within a period of 30 days of notice; or (ii) is unwilling or unable to pay the balance of the purchase price on Completion. In these circumstances Hunting Energy Holdings would be paid the deposit together with all interest accrued thereon; and

by the Purchaser if, amongst other things, (A) an event occurs or Hunting Energy Holdings breaches its representations and warranties under the Disposal Agreement, which event or breach would cause a reduction in the value of the shares of Gibson Energy in excess of 10 per cent. of the purchase price (except where this reduction is caused by certain events, such as global economic changes, various general changes affecting the industry in which the Gibson Energy Group operates or changes in applicable laws) as agreed between the parties or determined by an independent expert arbitrator (a "Material Adverse Effect"); or (B) Hunting or Hunting Energy Holdings breaches certain material covenants of the Disposal Agreement in any material respect in certain circumstances, and such breach is not remedied within a period of 30 days of notice. In these circumstances, the deposit, together with all interest accrued thereon, would be returned to the Purchaser, which would also be entitled to claim against Hunting Energy Holdings for damages for breach of contract.

The Purchaser intends to fund the consideration for the Disposal through a combination of debt and equity financing. With respect to the Purchaser's debt financing, the Purchaser has secured a commitment letter from UBS Loan Finance LLC and UBS Securities, which have committed to provide or arrange such financing. The debt financing commitments are conditional upon the satisfaction of certain conditions, including there not having occurred a Material Adverse Effect since the date of the Disposal Agreement, the Purchaser having received a minimum level of equity financing and the Purchaser's direct holding parent company satisfying a prescribed debt to EBITDA ratio on the date of Completion, after giving effect to the Disposal.

To the extent that the Purchaser is unable or unwilling to pay the consideration due on Completion, Hunting Energy Holdings would be entitled to the deposit, together with all interest accrued thereon, provided that Hunting Energy Holdings is not in material breach of its obligations under the terms and conditions of the Disposal Agreement.

In the period prior to Completion, Hunting Energy Holdings has agreed to provide such reasonable co-operation as may be reasonably requested by the Purchaser in connection with the syndication of the Purchaser's committed debt financing, provided that such co-operation does not unreasonably or materially interfere with or prejudice the operation of the businesses of the Gibson Energy Group. Such syndication is not a condition to the Purchaser's committed debt financing.

  Financial effects of the Disposal 

The total consideration for the Disposal is CAN$1,270 million (approximately £626 million), subject to the Adjustments. The total consideration includes payment for the net working capital in the Gibson Energy Group as at Completion, which is estimated to be CAN$170 million (approximately £84 million). The net proceeds of the Disposal after expenses are expected to be CAN$1,223 million (approximately £602 million), subject to the Adjustments. 

The Board expects that Hunting will record a profit on Disposal of approximately £305 million in the current year. Taking into account the profit on Disposal, the Board expects the Proposed Disposal to be earnings enhancing for the Continuing Group, for the year ending 31 December 2008.

Use of proceeds

The Board expects that the net proceeds from the Disposal will be used to invest in Hunting Energy Services, make earnings enhancing acquisitions and to eliminate net borrowings. The Board remains committed to pursuing an efficient capital structure for the Group and will continue to review its strategy in this regard in the context of the available acquisition opportunities.

Subject to, inter alia, the above, it is the current intention of the Board to use approximately 24 per cent. of the net proceeds to eliminate net borrowings, with the remainder to be used to invest in Hunting Energy Services and to make earnings enhancing acquisitions.

Information on the Continuing Group

Overview

Following Completion, the Continuing Group's operations will be focused on the Hunting Energy Services division, the vertically integrated supplier of well construction and well completion equipment, exploration and production services and petrochemical equipment. The Continuing Group also has other divisions including shipbroking and aircraft maintenance. The Continuing Group employs approximately 2,050 people and is headquartered in London, England.

Hunting Energy Services

Hunting Energy Services has operations in 30 locations across North America, Europe and Asia and has been the fastest growing division of the Group, recording 57 per cent. compounded annual growth in profit from operations over the last five years. As at 31 December 2007, the division had 1,476 employees under four business platforms: well construction, well completion, exploration and production and Hunting Energy France, a provider of petrochemical equipment. 

The well construction platform provides manufactured products and engineering expertise and services used in the drilling phase of oil and gas wells along with associated trenchless boring applications used by the underground construction industry for telecommunication infrastructure build out. Products within the division include mud motors and non-magnetic drill collars and premium connections for oil country tubular goods. Products are processed and/or manufactured at Hunting Energy Services' facilities that are strategically located throughout the world. 

The well completion platform provides manufactured products, proprietary technology and engineering services for the completion and intervention phases of oil and gas wells. Manufactured products include accessories and completion equipment for oil and gas wells, including speciality threading, oil country tubular goods casing and thread protectors, well intervention down hole tools, pressure control equipment and coiled tubing tools. In the year ended 31 December 2007, the platform reported record revenues and profits driven by new technologies, additional capacity and higher margins.

The exploration and production platform includes oil and gas exploration and production activities in the Southern US and offshore Gulf of Mexico. The platform is based in Texas and has minority non-operating equity holdings in over 80 oil and gas production facilities. The platform also provides products and services to operators. In the year ended 31 December 2007, the platform participated in the drilling of 16 wells, with eight successes - five in gas, two in oil and one in oil and gas. Full year output was 457,449 net equivalent barrels in 2007 compared to 380,628 net equivalent barrels in 2006 as a result of higher natural gas production from new wells.

Hunting Energy France comprises four French based businesses (Interpec, Larco, Setmat and Roforge) providing petrochemical equipment and services. Interpec supplies products for a range of applications in pipelines, terminals, refineries and power plants. Larco is a manufacturer of products for liquid storage tanks and automated systems for oil and liquid petroleum gas depot management. Setmat provides oil terminal management services and Roforge manufactures and supplies high specification forged valves for the energy and associated industries.

A summary of the trading results of Hunting Energy Services for the three years ended 31 December 2007 is set out below.

Source: Revenue and profit from operations have been extracted, without material adjustment, from Hunting's audited accounts for the years ended 31 December 2005, 2006 and 2007, subject to the notes below.

Note: The results of Hunting Energy France were originally consolidated within Hunting's other operating divisions for the year ended 31 December 2005. However, for consistency with Hunting's reported results for the years ended 31 December 2006 and 2007, the results for Hunting Energy France have been separately disclosed above for the year ended 31 December 2005 within Hunting Energy Services. All figures have been extracted without material adjustment from consolidation schedules which support the audited financial statements.

Note: The results of Hunting Specialized Products were originally consolidated within Hunting's other operating divisions for the year ended 31 December 2005 and have been extracted without material adjustment from consolidation schedules which support the audited financial statements. Subsequently, for the years ended 31 December 2006 and 2007, the results of Hunting Specialized Products were consolidated within Hunting's well completion segment within Hunting Energy Services. For consistency with Hunting's reported results for the years ended 31 December 2006 and 2007, the results for Hunting Specialized Products have been consolidated within Hunting's well completion segment for the year ended 31 December 2005. All figures have been extracted without material adjustment from consolidation schedules which support the audited financial statements.

Other operating divisions

Gibson Shipbrokers is an international London based shipbroker primarily engaged in the transportation of crude oil and other liquefied natural and petroleum gas, as well as providing sale and purchase, offshore, dry cargo and related shipping services. In addition, Gibson Shipbrokers has a research consultancy providing market and technical analysis and a speciality product brokerage, primarily in liquefied petroleum gas, with offices in London and Asia. Challenging trading conditions in 2007 were offset by improved results from gas and specialised tankers. Further expansion for Gibson Shipbrokers is planned during 2008 to take advantage of identified opportunities.

Field Aviation Canada modifies, repairs and overhauls regional aircraft for international customers from facilities in Canada. 

A summary of the trading results of Hunting's other operating divisions for the three years ended 31 December 2007 is set out below.

Source: Revenue and profit from operations have been extracted, without material adjustment, from Hunting's audited accounts for the years ended 31 December 2005, 2006 and 2007, subject to the notes below.

Note: The results of Hunting Energy France were originally consolidated within Hunting's other operating divisions for the year ended 31 December 2005. However, for consistency with Hunting's reported results for the years ended 31 December 2006 and 2007, the results for Hunting Energy France have been separately disclosed for the year ended 31 December 2005 within Hunting Energy Services. All figures have been extracted without material adjustment from consolidation schedules which support the audited financial statements.

Note: The results of Hunting Specialized Products were originally consolidated within Hunting's other operating divisions for the year ended 31 December 2005 and have been extracted without material adjustment from consolidation schedules which support the audited financial statements. Subsequently, for the years ended 31 December 2006 and 2007, the results of Hunting Specialized Products were consolidated within Hunting's well completion segment within Hunting Energy Services. For consistency with Hunting's reported results for the years ended 31 December 2006 and 2007, the results for Hunting Specialized Products have been consolidated within Hunting's well completion segment for the year ended 31 December 2005. All figures have been extracted without material adjustment from consolidation schedules which support the audited financial statements.

Hunting's future strategy 

Following Completion, Hunting will continue to be focused on North America but with an increasing contribution expected from the international arena. Energy and the demand for it continues to dominate global macro economic issues. Drilling for oil and natural gas in the United States reached a 22 year high in 2007, while producers expanded their search for new reserves in the onshore basins and the Gulf of Mexico. Although the rig count declined in Canada, primarily as a result of lower gas prices and higher costs for shallow well exploration and production, demand has continued for the more complex, technology driven, deeper applications on which Hunting focuses. Internationally, there has been continued expansion due to commodity price increases. These favourable market conditions have historically enabled significant margin improvement from price increases, equipment utilisation and manpower efficiencies for Hunting. 

As a result of these demand factors, exploration budgets for oil and gas companies worldwide are expected to increase by 20 per cent. in 2008, supporting further growth for Hunting's products and services. At current commodity price levels, oil and gas producers are again increasing their investment to boost reserves and production capabilities. The 20 per cent. investment growth will place additional pressure on the existing and over stretched manpower resources and hence is expected to continue to provide excellent growth opportunities for the oil service industry. Accordingly, the Company sees heightened activity levels for the foreseeable future.

Following Completion, Hunting's ongoing strategy will be focused on taking advantage of the following opportunities for growth:

Organic growth in core markets - Hunting will develop its markets organically through investment in new product development on a global basis, including the use of titanium in well completion tubing and growth in technology above the wellhead in addition to continued investment in recruiting and retaining highly skilled employees. Building on strong positions globally, these new products will be channelled to new and existing customers; and 

Acquisitions - Hunting will continue its positive and proactive acquisition policy identifying companies that can potentially be acquired to provide new technologies, develop local footprints in key markets and complement existing activities.

A key objective for all of Hunting's activities will be to continue to increase the overall exposure of the Continuing Group's activities to Europe, Asia and in particular China and other developing geographic regions.

  Current trading and prospects for the Continuing Group

The Board's view of the current trading and prospects for the Continuing Group remains in line with the statement made on 1 July 2008, extracts (without material adjustment) of which are set out below:

"Trading conditions continue to be robust. The Board remains confident on the outlook for the year as performance is in line with internal expectations.

Energy, and the demand for it, continues to dominate the media, political agendas and public awareness. The result is a continuing challenge for the oil and gas industry to provide increased production from worldwide exploration with assistance from a capacity constrained service industry. Therefore, Hunting's strategically located assets in the Canadian tar sands and the global drilling arena continue to see excellent growth opportunities.

In Hunting Energy Services, all 14 global facilities have seen an improvement over the prior period. Exploration and production spending forecasts have risen from an 11 per cent. increase over 2007 to 20 per cent. Order books remain strong, especially in the North Sea, Asia and the United States. Expectations are for a strong second half in upstream activity due to new rigs being delivered and the increase in natural gas drilling in Canada and the United States. Expansion plans developed late last year should also benefit the division primarily in well completion. Exploration and production activities are strong due to the increase in oil and gas prices.

Capital expenditure will once again exceed prior year levels as customer demand is providing new opportunities.

Hunting's Half-Year Results for the six months to 30 June 2008 are expected to be announced on Thursday 28 August 2008."

Current trading and prospects for Gibson Energy

The Board's view of the current trading and prospects of Gibson Energy remains in line with the statement made on 1 July 2008, extracts (without material adjustment) of which are set out below:

"In Gibson Energy, the Truck Transportation division has experienced strong demand as a result of the high levels of heavy oil project activity in Canada. The recent acquisition of Chief Hauling for approximately £7.4m will add additional capacity to the fleet especially in sulphur hauling. With the increasing price of crude, the Marketing division has benefited from the volatility and has captured further gains at its Edmonton North facility. Terminals and Pipelines have seen a continuation of excellent results due to increased volumes and rates. Due to higher feed stock prices, Moose Jaw is behind expectations but should see improvement as the year progresses. Canwest Propane is performing to expectations."

Circular to Shareholders

The Circular containing the Board's recommendation (other than in relation to Terry Gomke for the reasons described above) that Shareholders vote in favour of the Resolution and a notice convening the Extraordinary General Meeting will be posted to Shareholders later today.

  DEFINITIONS

The following definitions apply throughout this announcement: