Kerkorian's Tracinda to Buy 35% Delta Petroleum Stake (Update7)
By Joe Carroll and Jim Polson

Dec. 31 (Bloomberg) -- 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 U.S. oil and gas producer accelerate drilling.

Delta agreed to sell Tracinda 36 million shares at $19 each, a 23
percent premium to its Dec. 28 closing price, according to a statement
today 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 today,
Delta had lost almost half its market value since the end of November

``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.

Exploration Plans

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
U.S. 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 today 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.

First Refusal

``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.''

Delta can't issue new stock without first offering to sell Tracinda
enough shares to maintain its stake in the company, according to the
agreement, which was submitted today as part of a public filing on the
deal. Tracinda keeps that right as long as its interest in Delta
doesn't fall below 10 percent. Delta reported reserves equivalent to
302 billion cubic feet of gas at the end of 2006 and has said
additional drilling may enable it to claim 4.28 trillion cubic feet of
gas equivalent. Its 2007 drilling budget was $250 million.

In the statement by Delta, Tracinda said it was attracted to the
company by its strong asset base and growth potential. Tom Johnson, a
spokesman for Tracinda, declined to comment further on the firm's
interest in Delta.

Energy Push

``Clearly, Tracinda wants to make investments in energy and here it
comes,'' said Roger Read, an analyst at Natixis Bleichroeder in

Kerkorian is paying about $4.49 per thousand cubic feet of proved
reserves, according to Wachovia's Tameron, who said investment risks
include declining gas prices and environmental opposition to expanded
drilling in the Rockies. He said Delta wouldn't have been able to
fund its $250 million capital budget for 2008 from cash flow, which
will total about $64 million.

``Certainly, this means we will not be needing to look at asset
sales,'' Parker said on the conference call.

Delta spent $438 million acquiring reserves and exploration prospects
in the past eight years. Parker said the 10-member board will be
expanded to accommodate Kerkorian's nominees.

Kerkorian, 90, was ranked as the seventh-richest American by Forbes
magazine with an estimated net worth of $18 billion. He made much of
his fortune from investments in movie studios, hotels, casinos and

Tesoro Offer

Tracinda withdrew its $1.4 billion tender offer for Tesoro stock after
the San Antonio-based refiner adopted a shareholder- rights plan. The
plan was designed to block potential acquirers from gaining control of
Tesoro without paying a premium for all of its shares.

The rights plan ``inhibits value for all Tesoro shareholders by, among
other things, restricting the ability of shareholders to vote, sell or
acquire Tesoro shares freely without fear of triggering the draconian
provisions of the rights plan,'' Tracinda said in a Nov. 27 statement.

Kerkorian's holdings include a stake in Las Vegas casino operator MGM
Mirage, which he founded in 1986. His investments in Chrysler yielded
a $2.7 billion profit when Daimler-Benz AG acquired the automaker in
1998. His bid last year to force General Motors Corp. into an alliance
with Renault SA and Nissan Motor Co. failed.

To contact the reporters on this story: Joe Carroll in Chicago at
[email protected] ; Jim Polson in New York at
mailto:[email protected]

December 31, 2007 16:14 EST

From: Emil Lazarian | Ararat NewsPress