Kerr-McGee ( KMG) is looking for a Rocky Mountain high. The recent announcement by the Oklahoma City exploration-and-production company that it will acquire fellow explorer Westport Resources ( WRC) may be a precursor of more consolidation, especially in the natural gas-rich Rocky Mountains. Kerr-McGee agreed to buy Westport Resources for a total of $3.375 billion, including $2.475 billion in equity and $900 million in net assumed debt. Under the merger agreement, Westport shareholders will receive 0.71 Kerr-McGee share for each Westport share, an implied price of $36.57 per share, or an 11% premium based on Tuesday's close. To complete the transaction, Kerr-McGee will have to issue more than 48 million shares. If completed, the combination would increase Kerr-McGee's total reserves by about 30%. In addition, the combined companies suggest they can achieve roughly $40 million in cost-saving synergies. Although Kerr-McGee says the acquisition will be accretive, it'll come at a price. According to information from both companies, Kerr-McGee appears to be paying around $1.90 per thousand cubic feet equivalent for Westport's year-end 2003 total proved reserves of 1.781 billion cubic feet equivalent, of which 65% are proved, developed reserves. That price is generally in line with other acquisitions recently announced by companies such as Chesapeake ( CHK). Investors aren't overly impressed, as Kerr-McGee shares are down nearly $3 in midmorning trading. The credit rating agencies were unimpressed as well: S&P downgraded Kerr-McGee's short-term debt and is reviewing its long-term debt rating.