Westport Resources Corporation

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Westport Resources Corporation

1670 Broadway, Suite 2800
Denver, Colorado 80202
U.S.A.
Telephone: (303) 573-5404
Fax: (303) 573-5609
Web site: http://www.westportresourcescorp.com

Public Company
Incorporated: 1991
Employees: 333
Sales: $813.88 million (2003)
Stock Exchanges: WRC
Ticker Symbol: New York
NAIC: 211111 Crude Petroleum and Natural Gas Extraction

Westport Resources Corporation is one of the 20 largest independent oil and gas exploration and production companies in the United States. Westport operates in North Dakota, Wyoming, Utah, Oklahoma, Texas, Louisiana, and the Gulf of Mexico, trying to strike a balance between lower-risk onshore properties and higher-risk offshore properties. The company's portfolio of assets is balanced between oil and gas.

Origins

Westport's definitive decade of development was a story of growth through acquisitions, a history punctuated by mergers that transformed a small, privately held company into one of the nation's largest independent oil and gas producers. The company was formed in 1991 as Westport Oil and Gas Company, Inc. During its inaugural decade, Westport completed a series of acquisitions that added to its reserve and production base. These acquisitions, which primarily consisted of oil- and gasproducing properties both onshore and offshore, served as a prelude to the mergers that later vaulted the company onto the national stage. From their base in Denver, Colorado, Westport executives built their company into a $35 million-in-sales concern by 1996, the year Westport's most influential leader arrived in Denver to lead it toward national prominence.

Donald D. Wolf joined Westport in June 1996, when he became the company's chairman and chief executive. A veteran of the oil and gas industry, Wolf previously had served in various capacities at a number of oil and gas companies, including Bow Valley Exploration, Tesoro Petroleum, Southland Royalty Co., and Sun Oil Co. In the years immediately preceding his arrival at Westport, Wolf served as president and chief operating officer at UMC Petroleum, a company that had acquired General Atlantic Resources Inc., which Wolf had founded in 1981. At Westport, Wolf presided over nearly all of the substantial transactions completed in the company's history, earning praise for his astute exploitation of the acquisitions he engineered. "Westport," the April 2001 issue of Oil & Gas Investor noted, "is a house built on acquisitions." Westport's success, the article explained, rested on the company's aggressive exploitation of its acquired assets, on what the company did with its acquired assets after they became part of the company's portfolio. Wolf, as the most influential individual at Westport, garnered much of the praise for the company's ability to add reserves at the same time it was increasing production from the acquired properties.

Westport's first growth surge actually began a year before Wolf's arrival. In 1995, the company completed its first sizable acquisition, purchasing properties in the Rocky Mountains owned by Conoco Inc. The assets acquired, which were located primarily in 76,000 acres spread across North Dakota and Wyoming, carried reserves of 55 billion cubic feet of gas equivalent (Bcfe). The acquisition of Conoco's Rocky Mountain assets touched off Westport's aggressive acquisition campaign, one that demanded roughly $250 million worth of investment during the ensuing four years. Nearly two years after the Conoco deal, Westport completed its next notable acquisition, purchasing the Axem companies in January 1997. The transaction added 82 Bcfe of reserves and 92,000 net acres in the Rocky Mountains, Texas, and the mid-continent region. By the end of the year, Westport's revenues reached nearly $64 million, far eclipsing the $35 million collected the previous year.

Mergers Fueling Rapid Growth: Late 1990s and Early 2000s

The addition of oil and gas properties steadily expanded Westport's foundation, helping the company build momentum toward its evolution into a national contender. In October 1998, Westport joined forces with Energen Resources Corp. to jointly acquire Total Minatome Corporation, a deal that netted Westport 64 Bcfe of reserves in the Rocky Mountains, the Gulf Coast, and the Gulf of Mexico. Westport's next deal proved to be the linchpin of the company's maturation into a nationally recognized oil and gas company. In April 2000, a merger was completed between Westport Oil and Gas Co. and Equitable Production (Gulf) Company (EPGC). EPGC operated as an indirect, wholly owned subsidiary of Equitable Resources, Inc., representing Equitable Resources' Gulf of Mexico exploration and production business unit. The process of consummating the merger saw Westport Oil and Gas Co. become a wholly owned subsidiary of EPGC. EPGC, in turn, adopted a new name that reflected each of the merged companies, changing its corporate title to Westport Resources Corporation.

The "new" Westport embarked on a new era of existence, drawing the bulk of its senior executives from the "old" Westport. Wolf remained in charge of the newly combined company, retaining his titles of chairman and chief executive officer at a pivotal juncture in Westport's development. The merger added 134 Bcfe of gas reserves in the Gulf of Mexico, as well as 106 Bcfe of probable and possible reserves, doubling the company's exploitation inventory in the Gulf of Mexico. The merger also gave Westport a more balanced portfolio of assets, adding considerable gas reserves to a profile heavily slanted toward oil. In addition, the merger significantly bolstered Westport's involvement in offshore activities, giving it high-risk, high-yield properties in the Gulf of Mexico to complement its lower-risk, lower-output onshore properties.

The merger between EPGC and Westport convinced Wolf that he was ready to take his company into the public market. In October 2000, Westport completed its initial public offering (IPO) of stock, selling 10.2 million shares at $15 per share. The company collected net proceeds of $104 million from the IPO, giving it the resources to reduce its debt. Once the money from the IPO was used, Westport's debt was a paltry $162,000, leaving the company on a solid financial footing to pursue its expansion plans. By April 2001, a year after the EPGC merger, Westport's proved reserves were 454 Bcfe, a total that was balanced between oil and gas, with one-third of the reserves located offshore and the remainder found in onshore assets.

After a year's respite, Wolf was ready to pursue Westport's next large-scale transaction, a deal that promised to position the company as a national force. "This year should present us with excellent opportunities, and we will be an active consolidator," Wolf remarked in an April 2001 interview with Oil & Gas Investor. "I see an increased level of mergers and acquisitions between independents," he added, "because the public markets demand greater liquidity."

The pace of growth achieved during Wolf's first years of stewardship by far outstripped the financial increases recorded during Westport's first five years of existence. Sales, which totaled $35 million in 1996, leaped to $220 million in 2000 thanks in large part to the merger with EPGC. The first years of the 21st century witnessed equally robust growth, as Westport aggressively expanded its operations through mergers and acquisitions. By the summer of 2001, a new merger was being discussed, one Wolf referred to as a "watershed event" in a June 12, 2001 interview with the Oil Daily. The proposed merger involved wedding Westport with Belco Oil & Gas Corp., a $166.3 million-in-sales oil and gas company with its primary operating offices located in Dallas, Texas. Belco was formed in 1992 and, like Westport, developed its reserve base by following a program of acquisitions, exploration, exploitation, and development drilling. Belco also operated in many of the same regions as Westport, dividing its operations into four areas that included the Rocky Mountains, the Gulf Coast, the Permian Basin of west Texas, and the Midwest.

Merger discussions were held throughout the summer of 2001 and concluded in August 2001. The all-stock transaction, which was valued at $922 million, made Westport one of the 20 largest independent producers in the nation, increasing its estimated reserves by 726 Bcfe, or 193 percent. The merger, according to the July 2001 issue of Oil & Gas Investor, represented a "classic case of a financially strong, but opportunity strained producer [Westport] getting together with a competitor that has substantial exploration and development opportunities, but lacks the money to pursue them [Belco]." As part of the terms of the merger, Westport assumed responsibility for $588 million of Belco's debt.

Westport celebrated its 10th anniversary in 2001, collecting $428 million in revenues for the year, or more than 12 times the amount the company generated five years earlier. In the years immediately following the Belco merger, Westport concluded several small acquisitions and two major acquisitions. Briefly, it looked as if Westport might be acquired by another company, Australia's second largest oil company, Woodside Petroleum. In September 2002, Woodside confirmed that it was seriously considering several potential acquisitions, with Westport listed as one of two companies named in the business press. By the following month, however, Woodside announced that it was stopping its pursuit of Westport. Meanwhile, Westport executives were busy working out the details of a major acquisition.

Key Dates:

1991:: Westport Oil and Gas Company, Inc. is formed.
1995:: Westport acquires Conoco Inc.'s Rocky Mountain properties.
1996:: Donald D. Wolf is appointed chairman and chief executive officer of Westport.
2000:: Westport merges with Equitable Production (Gulf) Company, creating Westport Resources Corporation.
2001:: Westport and Belco Oil & Gas Corp. merge.
2002:: Westport acquires $507 million worth of natural gas assets from El Paso Corporation.
2004:: Westport announces it has agreed to a $3.4 billion merger with Kerr-McGee Corp.

Westport's financial strength during the early years of the decade was not a trait every energy company could claim to possess. El Paso Corporation, a more than $12 billion-in-sales energy company based in Houston, Texas, was experiencing severe financial difficulties during the early years of the decade. In 2002, a year that would end with a nearly $1.5 billion loss for the company, El Paso was shedding assets to alleviate its financial problems. Westport benefited from the financial ailments of its much larger competitor, purchasing wells and pipelines and other natural gas assets located in Utah from El Paso. The acquisition, completed in December 2002, was valued at $507 million and gave Westport nearly all the assets that would form its Western division, one of four divisions comprising the company's operations. Westport's next major acquisition was completed a year after the El Paso purchase was completed. In December 2003, the company acquired oil and gas properties from United Resources, a privately held company. Westport paid $341 million to complete the deal, which increased its total proved reserves by 211 Bcfe.

Mergers and acquisitions described much of Westport's development, particularly during the late 1990s and the early years of the 21st century. The same corporate maneuvers that built the company also threatened to trigger its disappearance. In April 2004, Westport announced that it had agreed to a $3.4 billion merger with Oklahoma City, Oklahoma-based Kerr-McGee Corp., a more than $4 billion-in-sales oil and gas company with operations in the United States and abroad. The merger, if approved by shareholders, was expected to create the nation's fifth largest independent oil and gas producer, a company to be operated as Kerr-McGee Corp. The Westport name, after 13 years in existence, was expected to be dropped. In a Westport press release dated April 7, 2004, Wolf commented on the pending deal. "This transaction provides important benefits to our shareholders," he said. "It provides significant value while retaining the opportunity to participate in the exciting upside potential of Kerr-McGee. Our shareholders will benefit from becoming part of a larger, more diversified company with tremendous growth opportunities balanced with a substantial development portfolio and a strong balance sheet." Shareholders were expected to vote on the merger in late 2004.