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Exhibit 99.1
To Form 8-K
AMERICAN OIL AND GAS CORPORATION NEWS RELEASE
KN ENERGY
K N ENERGY AND AMERICAN OIL AND GAS
ENTER INTO MERGER AGREEMENT
Lakewood, CO/Houston, TX -- K N Energy, Inc. (NYSE-KNE) and American Oil and
Gas Corporation (NYSE-AOG) jointly announced today they had signed a definitive
merger agreement to combine the two companies.
TRANSACTION STRUCTURE
The contemplated merger will be a tax-free exchange of common stock, in which
0.47 of a share of K N Energy common stock will be exchanged for each
outstanding share of American Oil and Gas. Following the merger, the combined
company will have approximately 28 million shares of common stock outstanding.
The proposed merger will require approval by the shareholders of both
companies, as well as specific regulatory and lender approvals. Closing is
anticipated within the next 90 to 120 days.
"We view this important merger as a marriage of two complementary companies
with the ability to capitalize on their respective strengths," said Charles W.
Battey, K N Energy chairman and chief executive officer. "Shareholders will
benefit as a result of the new company's strong financial position, attractive
dividend yield and prospects for future growth."
"The merger will create a strategic alliance and will better position the
combined company to take advantage of growth opportunities," said David M.
Carmichael, chairman and chief executive officer of American Oil and Gas. "We
believe the new company will be a significant player in the evolving North
American gas markets by virtue of its strong access to supply and markets."
The merger will combine two geographically distinct gas systems with
complementary supply basins, service territories, and target marketing areas.
The proximity of the two companies' Rocky Mountain and Mid-Continent operating
regions enhances the opportunity to integrate facilities and services, and
compete more effectively in the natural gas industry.
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FINANCIAL CONSIDERATIONS
At December 31, 1993, the pro forma combined companies would have had
approximately $1.2 billion in assets, $1.0 billion in annual revenues and $31
million in annual net income. Also, pro forma combined pre-tax cash flow from
operations, defined as operating income plus depreciation, depletion and
amortization, would have been $123 million. The merger is expected to be
accounted for as a pooling of interests, in which the resources and the
reported financial statements of the two entities are consolidated.
The parties anticipate the merger will provide substantial operating benefits.
The benefits are expected to increase cash flow from operations and provide for
positive earnings momentum once the combination is completed and the one-time
charges associated with the combination have been absorbed.
The combined entity will have equity capital of approximately $392 million, and
a long-term debt to total capitalization ratio of approximately 45 percent,
which will provide significant financial flexibility. This ratio compares to
an average long-term debt to total capitalization ratio of 50 percent among
diversified natural gas companies and about 55 percent among natural gas
gathering, transportation and marketing companies.
K N Energy's most recent declared quarterly common stock dividend was $0.24 per
share, payable March 31, 1994; American Oil and Gas does not pay a common stock
dividend. It is anticipated that the combined company will maintain a $0.24
per share quarterly dividend level on common stock after the merger.
BUSINESS OPPORTUNITIES
The combined company will be a major pipeline participant in the natural gas
gathering, transportation and marketing sector, particularly in the Rocky
Mountain and Mid-Continent regions of the United States. The combined entity
will market, sell and transport an aggregate of 1.5 billion cubic feet of
natural gas per day -- almost three percent of total United States natural gas
consumption.
GAS SALES AND MARKETING: For 1993, the total sales of natural gas of the two
companies was approximately 333 billion cubic feet. K N Energy's traditional
service territory has a high winter heating demand for natural gas, while
American Oil and Gas's service territory has a higher demand in the summer when
natural gas is used for electricity generation and to power irrigation pump
engines. The balanced load that results from the combined company's strong
year-round demand will enhance market access for producers and provide a
diverse, competitive gas supply for customers.
The combined company will have greater access to multiple pipeline market
centers, or trading hubs, thereby enhancing the ability to market gas to a
broader customer base on the nationwide natural gas pipeline system. Market
centers are physical pipeline interconnects among a number of pipelines where
natural gas is bought, sold, delivered and transferred for short and long-term
customer needs. The natural gas industry's use of market centers increased
dramatically during the abnormally cold winter of 1993-1994 and contributed to
the
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success of the industry in meeting marketplace demands. American Oil and Gas's
systems connect with the Waha market center in West Texas and with K N Energy's
Buffalo Wallow market center in the Texas Panhandle.
GAS TRANSPORTATION AND STORAGE: The combined company will have over 18,700
total miles of transmission and gathering pipeline that serve direct markets
and also interconnect with other major pipelines. The new company will offer
natural gas shippers greater access to diverse supply regions and to natural
gas markets throughout the United States and, therefore, will be better able to
utilize existing pipeline system capacity. K N Energy was successful in
increasing the total throughput on its pipeline systems by 70 percent between
1988 and 1993. The combined management team will focus its efforts on
maximizing throughput on all of the merged company's systems.
In addition, the combined company will have initial core working gas storage
capacity of 28 billion cubic feet, with an additional three billion cubic feet
of high-deliverability salt cavern storage under development. The locations of
the principal storage fields in southwestern Nebraska and in western Texas
offer customers flexible storage options to meet peaking needs and seasonal
load management requirements. American Oil and Gas's storage sites are located
near the Waha, Texas market center and are directly connected to K N Energy's
Buffalo Wallow market center through the Red River Pipeline, operated by
American Oil and Gas.
NATURAL GAS GATHERING AND PROCESSING: The combined company will operate
nonregulated gathering and processing facilities in six Rocky Mountain and
Mid-Continent states. The company will have operations in some of the largest
and most prolific gas-producing areas in the U.S., stretching from the Wind
River and Powder River Basins in Wyoming, south through the Denver-Julesburg
basin in Colorado, the Anadarko Basin and Hugoton Embayment in Kansas, Oklahoma
and Texas, to the Permian Basin in southwestern Texas.
For 1993, total processing plant hydrocarbon liquid sales of the two companies
were 320 million gallons. This accounted for approximately 10 percent of 1993
aggregate revenues of the two companies.
CONSOLIDATION EFFICIENCIES: The combined entity's diversity of operations in
all facets of the natural gas value stream allows it to moderate the potential
risks of any one sector of the industry. The combined company will attain
economies of scale in operations and will be able to reduce overall
administrative overhead costs, making it a more competitive service provider
from the natural gas wellhead to the burnertip.
MANAGEMENT AND GOVERNANCE
Upon closing of the transaction, Charles W. Battey, chairman and chief
executive officer of K N Energy, will serve as chairman of the board of the
combined company, Larry D. Hall, K N Energy's president and chief operating
officer, will serve as president and chief executive officer of the combined
company, and David M. Carmichael, chairman and chief executive
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officer of American Oil and Gas, will serve as vice chairman of the combined
company. Prior to closing, Dan Dienstbier will continue as president of
American Oil and Gas and will help accomplish the integration of the two
companies.
Also, upon closing, K N Energy's Board of Directors will be increased from 10
to 14 directors, as a result of adding four current directors of American Oil
and Gas. Cabot Corporation, American Oil and Gas's largest shareholder, will
be represented at board of directors' meetings of the combined company via a
single, non-voting, advisory director. Cabot owns approximately 35 percent of
the outstanding shares of American Oil and Gas, and would own approximately 15
percent of the outstanding common stock of the combined company at the time of
merger.
OPERATIONS DESCRIPTIONS
K N Energy is a natural gas services company focusing on gas reserves
development, gas gathering, processing, marketing, storage, transportation and
retail gas distribution services. The Company, with 1,735, employees, operates
in seven states and serves customers, including 232,000 direct retail
customers, through three pipeline systems.
American Oil and Gas operates principally in Texas in the mid-stream segment of
the natural gas industry, providing essential services between the wellhead and
the end user. These services include marketing, storage, transportation,
gathering and processing. American Oil and Gas has 409 employees.
Petrie Parkman & Co. and Rauscher Pierce Refsnes, Inc. are serving as financial
advisors to K N Energy in connection with the merger, and Goldman, Sachs & Co.
is serving in the same capacity for American Oil and Gas.
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(A TABLE OF SUMMARY 1993 FINANCIAL AND STATISTICAL INFORMATION RELATING TO THE
TWO COMPANIES FOLLOWS.)
RELEASE DATE: Immediate Release, Thursday, March 24, 1994
CONTACTS: K N ENERGY, INC.
Dick Buxton (303) 763-3472
Dave Loiseau (303) 763-3494
AMERICAN OIL AND GAS CORPORATION
Tom Fanning (713) 739-2960
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K N ENERGY, INC. AND AMERICAN OIL AND GAS CORPORATION
SUMMARY FINANCIAL AND STATISTICAL INFORMATION
YEAR ENDED DECEMBER 31, 1993
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AMERICAN PRO FORMA
K N ENERGY OIL AND GAS COMBINED
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FINANCIAL INDICATORS
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(Dollars in Millions)
Operating Revenue $ 493 $ 539 $ 1,032
Operating Costs 434 518 952
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Operating Income 59 21 80
Net Income $ 24 $ 7 $ 31
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Pre-Tax Cash Flow From Operations $ 85 $ 38 $ 123
(Operating Income + DD&A)
Assets $ 731 $ 422 $ 1,153
Common Equity $ 202 $ 190 $ 392
Long-Term Debt % of Total Capitalization 52% 35% 45%
STATISTICS
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Natural Gas Sales, Bcf 129 204 333
Natural Gas Transported, Bcf 100 111 211
Average Daily Throughput (Sales Plus 627 871 1,498
Transport), MMcf
Natural Gas Liquids Sales, Million Gallons 145 175 320
Transmission and Gathering Pipeline, Miles 12,500 6,200 18,700
Bcf = billion cubic feet
MMcf = million cubic feet
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