Triton Energy Corp. Avoids Sale, Signs $377 Million Financing Agreement with Arco

Strategic Insights -

Triton Energy Corp.'s shares plummeted 33% to $20-1/2 on Friday after the Dallas-based independent announced that it would not be sold as expected, but rather had arranged a $377 million financing agreement with Atlantic Richfield Co. (Arco) for its Gulf of Thailand natural gas play. Analysts had anticipated the entire company would be bought, especially after Triton announced in early April that it was exploring strategic alternatives to create more value for its two producing assets. The deal, however, has been met with disappointment, with some analysts calling it a "disaster" for Triton.

Key Takeaways:

  • Triton Energy Corp. will not be sold as expected, but instead has arranged a $377 million financing agreement with Atlantic Richfield Co. (Arco) for its Gulf of Thailand natural gas play.
  • Triton's stock dropped 33% to $20-1/2 on Friday, following the announcement.
  • Analysts had expected the entire company to be bought, especially after Triton announced in early April that it was exploring strategic alternatives to create more value for its two producing assets.
  • The deal includes Arco buying half of Triton's 50% interest in Block A-18 in the Gulf of Thailand Joint Development Area (JDA) for $150 million upfront, financing up to $377 million of Triton's share of the block's costs, and paying two additional "bonus" sums ranging from $40 million to $65 million if certain production objectives are met in 2002 and 2005.
  • Analysts speculate that bids for the entire company were extremely disappointing, citing security risks of operating in Colombia, a deepening of the Asian economic crisis, and the steep premium demanded on overseas reserves by vendors in the low oil price environment.
  • Unified Energy Group's director of research, John G Ledgerwood, believes there are still other potential buyers in the market, including Phillips Petroleum Co.
  • Triton will take after-tax charges totaling $160 million in the next two quarters due to restructuring efforts and low prices.

Statistics:

  • Triton's stock dropped by 33% to $20-1/2 on Friday.
  • Arco will buy half of Triton's 50% interest in Block A-18 in the JDA for $150 million upfront.
  • Arco will finance up to $377 million of Triton's share of the block's costs.
  • Arco will pay two additional "bonus" sums ranging from $40 million to $65 million if certain production objectives are met in 2002 and 2005.
  • Triton will take after-tax charges totaling $160 million in the next two quarters.
  • The deal is expected to result in an after-tax gain for Triton of about $63 million in the third quarter.

Sources:

  • "Triton to Pursue Strategic Alternatives to Create More Value for Shareholders"
  • "Triton Energy Corp. Seeks Strategic Alternatives"
  • "Arco to Buy Half of Triton's Interest in Block A-18 in the JDA"
  • "Triton's Stock Drops 33% on Friday Following Announcement of Arco Deal"