SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of earliest event reported: March 24, 1994
K N ENERGY, INC.
______________________________________________________________
(Exact name of registrant as specified in its charter)
Kansas 1-6446 48-0290000
__________________________________________________________________
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
370 Van Gordon Street, P.O. Box 281304, Lakewood, CO 80228-8304
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (303) 989-1740
<PAGE>
Item 5: Other Events
______ ____________
With respect to the execution of a definitive merger agreement
between K N Energy, Inc. and American Oil and Gas Corporation,
reference is hereby made to the press release dated March 24,
1994 which is filed herewith as an exhibit and incorporated
herein by this reference.
Item 7: Financial Statements, Pro-Forma Financial Information
______ _____________________________________________________
and Exhibits
____________
(a) Financial Statements - None
(b) Pro-Forma Financial Statements - None
(c) Exhibits
1.1 Press release dated March 24, 1994
_____________
EXHIBIT INDEX
_____________
Exhibit
Number Exhibit Description Page
_______ ___________________ ____
1.1 Press Release dated March 24, 1994 4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
K N ENERGY, INC.
By:/s/ William S. Garner, Jr.
____________________________
William S. Garner, Jr.
Vice President, General Counsel
and Secretary
Date: March 25, 1994
[KNE logo] [AOG logo] NEWS
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.
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
<PAGE>
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 success of the industry in meeting marketplace
<PAGE>
demands. American Oil and Gas's systems connect with the Waha mar
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 combined 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
<PAGE>
and chief operating officer, will serve as president and chief
executive officer of the combined company and David M. Carmichael,
chairman and chief executive 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.
END
(A table of summary 1993 financial and statistical information
relating to the two companies follows. A map showing the geographic
scope of operations is also included.)
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
<PAGE>
K N ENERGY, INC. AND AMERICAN OIL AND GAS CORPORATION
SUMMARY FINANCIAL AND STATISTICAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
___________________________________
AMERICAN PRO FORMA
K N ENERGY OIL AND GAS COMBINED
========== =========== =========
<S> <C> <C> <C>
FINANCIAL INDICATORS
____________________
(Dollars in Millions)
Operating Revenues $ 493 $ 539 $ 1,032
Operating Costs 434 518 952
_____ _____ _______
Operating Income 59 21 80
Net Income $ 24 $ 7 $ 31
===== ===== =======
Pre-Tax Cash Flow From Operations
(Operating Income + DD&A) $ 85 $ 38 $ 123
Assets $ 731 $ 422 $ 1,153
Common Equity $ 202 $ 190 $ 392
Long-Term Debt % of Total
Capitalization 52% 35% 45%
STATISTICS:
Natural Gas Sales, Bcf 129 204 333
Natural Gas Transported, Bcf 100 111 211
Average Daily Throughput (Sales
Plus Transport), MMcf 627 871 1,498
Natural Gas Liquids Sales,
Million Gallons 145 175 320
Transmission and Gathering
Pipeline, Miles 12,500 6,200 18,700
</TABLE>
Bcf = billion cubic feet
MMcf = million cubic feet
<PAGE>
Geographic
Scope of
Operations
[KNE logo]
[map of combined systems located in states of Wyoming, Nebraska, Colorado,
Kansas, Oklahoma and Texas]
[AOG logo]
