Kerkorian's Tracinda to buy Delta Petroleum stake

Kirk Kerkorian's Tracinda Corp agreed to buy a 35 percent stake in Delta Petroleum Corp for $684 million in a deal that will help the US oil and gas producer accelerate drilling.

Delta agreed to sell Tracinda 36 million shares at $19 each, a 23 percent premium to its December 28 closing price, according to a statement by the Denver-based oil company.

Tracinda, which will get the right to nominate as much as a third of Delta's board, made the deal a month after withdrawing a tender offer for 16 percent of refiner Tesoro Corp. Delta's price-to-book-ratio, or share price divided by book value, is 32 percent below the average for its peer group, according to data compiled by Bloomberg. Before Monday, Delta had lost almost half its market value since the end of November 2006.

"The million-dollar question is, what does Kerkorian see that the rest of Wall Street doesn't?" David Tameron, an analyst at Wachovia Capital Markets LLC in Denver, said in a telephone interview. "Before today, it was suspected Delta was going to be forced to do some kind of equity offering or sell some assets to fund drilling, or else cut its 2008 budget."

Delta rose $3.34, or 22 percent, to $18.85 on the NASDAQ Stock Market. The gain was Delta's biggest since October 2002.

Delta plans to speed up drilling in the Paradox Basin in Utah and the Piceance Basin in Colorado, part of a region forecast by the US Energy Department to become the largest domestic source of natural gas.

New pipelines connecting Rocky Mountain gas fields to consuming markets will boost demand for Delta's output, Chief Executive Officer Roger Parker said on a conference call with investors.

Morgan Stanley and Merrill Lynch & Co advised Delta, which has posted losses in five straight quarters, on the transaction. Talks with Tracinda began about a month ago. Parker, who is also chairman, said he never considered selling the entire company. The agreement includes a $5 million breakup fee.

Additional equity may be used to fund drilling and acquisitions, Delta said. The agreement, which allows Delta to use the cash without restrictions from Tracinda, will be submitted to shareholders for approval in February. The company's stock ticker is DPTR.

"More important than the premium, in our opinion, is that DPTR financing concerns for the next few years are removed," Tameron said in a note to clients. "This removes the funding overhang and removes any concern about its debt coverage capability."

Agencies

(China Daily 01/02/2008 page17)