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Bellweather to Acquire Bargo Energy Co.

Bellwether Exploration Company (NASDAQ:BELW), Houston, Texas, has signed an agreement to acquire Bargo Energy Company (OTC:BARG) in a cash and stock transaction which has been approved by each company's board of directors. Under the agreement, Bellwether will provide to Bargo common shareholders and option holders approximately $60 million in cash and $80 million in Bellwether stock for an implied consideration of $1.26 per fully diluted share. The number of shares will be determined by Bellwether's 20 day trading average 3 days prior to closing and will be subject to a price collar. On this basis, Bargo shareholders will receive at least 8.9 million Bellwether shares and no more than 11.4 million Bellwether shares.

The transaction is structured to be tax free with respect to the Bellwether common stock issued to Bargo common shareholders. The transaction also includes the assumption of Bargo's liabilities and the redemption of Bargo's preferred stock for $50 million in cash plus accrued dividends. Based on projected year end 2000 numbers, the value of this acquisition is approximately $240 million. At Bellwether's January 24, 2001 closing price of $9.22, Bellwether shareholders would own approximately 62% of the combined company and Bargo shareholders would own approximately 38%.

The new company will have a total pro forma market enterprise value of approximately $500 million. The company anticipates arranging new credit facilities to provide funding for the merger.

Shareholder meetings and subsequent closing is expected in early Spring 2001. A new name for the combined company is being developed, and will be disclosed shortly. The company will be headquartered in Houston, Texas.

On a pro forma basis, the combination is anticipated to do the following:

-- More than double Bellwether's proved reserve base to approximately 80 MMBOE (65% oil)

-- Nearly double Bellwether's daily production exit rate to approximately 25 MBOE per day (60% oil)

-- Add quality reserves at an attractive cost of less than $5 per proved BOE

-- Be immediately accretive to both earnings and cash flow per share

-- Lengthen Bellwether's reserve life from approximately 6 to 9 years

-- Increase the percentage of operated properties from approximately 40% to 50%

-- Capture significant annual cost savings through the combination of the two companies

-- Provide a platform for further consolidation in the combined company's key operating areas, which will be the Permian Basin and the onshore / offshore Gulf Coast regions

-- Strengthen Bellwether's executive management team

Management and Board

Doug Manner, Bellwether's current president and CEO, will remain CEO and become the new chairman of the board. Jonathan Clarkson, the current president of Bargo, who has over 25years of experience, both as a banker and financial executive in the independent energy sector, will become the company's new president and CFO. The company will restructure its board to include four representatives from Bellwether and three from Bargo. J.P. Bryan and Tim J. Goff, the previous chairmen of Bellwether and Bargo, respectively, will retain seats on the new board.

Pro Forma Summary of Core Area Properties

Permian Basin (34% of reserves)

-- Long-life production, primarily oil

-- Mostly operated by majors or large independents

-- Waterfloods with long-term C02 potential for increased oil recovery

-- New Mexico gas production with exploration potential

Gulf Coast C 24% of reserves)

-- Approximately 67% gas, 33% oil production

-- Upside potential in structural and stratigraphic gas plays

-- Upside oil potential in large field previously operated by a major

-- Significant inventory of exploration and exploitation prospects

Gulf of Mexico (8% of reserves)

-- High rate gas production

-- Focus of Bellwether exploration program

East Texas (14% of reserves)

-- Operated oil production, primarily from East Texas oil field

-- Properties purchased from Arco and Texaco

-- Optimization potential on previous Texaco properties

Ecuador (10% of reserves)

-- Oil production with significant exploitation upside

-- Exploration upside

Doug Manner commented, "This combination meets Bellwether's criteria of a strategic fit for the company. It significantly increases the company's position in the Permian Basin and Gulf Coast area where Bellwether Exploration has historically achieved high rates of return, and it should enable the company to capture additional opportunities as well as cost savings." Manner further stated, "The increased cash flow from the combination is expected to enable the company to better fund its growing portfolio of development opportunities. We are obviously quite enthused about the potential value that will be created for our shareholders by the transaction. We are also quite pleased to welcome certain key Bargo Energy employees to the company."

Jonathan Clarkson stated, "We expect the combined companies to provide the critical mass and offer the financial flexibility that will allow us to exploit a large inventory of exploitation and development projects. The stronger prospect inventory and technical talent will enable the combined companies to deliver enhanced shareholder return." He further added, "When I joined the Bargo team in 1999, the focus was on increasing value and liquidity for our shareholders by assembling and exploiting a large reserve base. This transaction with Bellwether, along with a successful divestiture program in the second half of 2000, fulfills our commitment to Bargo's shareholders by providing them with an immediate cash return on their investment, plus providing them with longer term upside potential with their continued ownership in the new company."


Johnson Rice & Company, L.L.C. is serving as the financial advisor to Bellwether and provided a fairness opinion for this transaction to Bellwether. Lehman Brothers Inc. and J.P. Morgan Chase and Co. are serving as financial advisors to Bargo. J.P. Morgan Chase and Co. provided a fairness opinion to Bargo's Board of Directors.

Bellwether Exploration Company is an independent oil and gas exploration and production company headquartered in Houston, Texas with oil and gas properties located in three core areas: the Gulf of Mexico both onshore and offshore, Southeast New Mexico/West Texas and Ecuador. Bargo Energy Company is a domestic oil and gas production, exploitation and acquisition firm headquartered in Houston, Texas with oil and gas properties located in the Permian Basin, Gulf Coast and East Texas.
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Publication:Worldwide Energy
Geographic Code:1USA
Date:Mar 1, 2001
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