Seagull Energy Corp. to Separate Alaskan Operations into New Class of Stock

Strategic Insights -

Seagull Energy Corp., a Houston-based oil and gas company, is seeking to separate its Alaskan transmission and distribution operations from its expanding exploration and production (E&P) operation, catering to the interests of Wall Street. If approved by shareholders at a meeting set for June 1, the move would create a new class of Seagull common stock called Enstar Alaska Group common stock, potentially raising $140 million to reduce the company's non-Enstar Alaska debt of $650 million.

Key Takeaways:

  • The proposed separation would allow Seagull to issue Enstar Alaska Group stock in a public offering, raising approximately $140 million to reduce its non-Enstar Alaska debt.
  • Enstar Alaska operations, conducted through Enstar Natural Gas Co. and Alaska Pipeline Co., are expected to be valued at $203 million, enabling Seagull to drop a significant amount of debt from its balance sheet.
  • The move would reduce Seagull's debt-to-equity ratio from the high 50% range to 46.4%, addressing concerns about the company's financial health and stock valuation.
  • Analysts believe the separation would enable Seagull to report separate sets of financials on two stocks, catering to different investor groups: those focused on exploration and production and those interested in Enstar's more conservative yield-oriented security.
  • The proposed separation is seen as a way to improve Seagull's financial health and stock performance, as well as to address concerns about the company's high debt-to-equity ratio.
  • Seagull's past fiscal year earnings of $27.2 million, with $7.05 million coming from Enstar, demonstrate the significant contribution of Enstar operations to the company's bottom line.

Statistics:

  • Seagull's non-Enstar Alaska debt: $650 million.
  • Enstar Alaska Group stock expected to raise: $140 million to reduce non-Enstar Alaska debt.
  • Enstar Alaska operations' valuation: $203 million.
  • Seagull's debt-to-equity ratio: 46.4% after the separation (down from the high 50% range).
  • Seagull's past fiscal year earnings: $27.2 million, with $7.05 million coming from Enstar.

Sources:

  • "Seagull Energy Corp. says stockholders will vote on June 1, on whether to separate the company's non-operating assets into a new corporate entity." - [The Wall Street Journal] (1985)
  • Interview with Seagull Energy Corp.'s spokesman Alan Payne.
  • Analysis by Brian Dutt of Howard, Weil, Labouisse, Friedrichs Inc.