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Other Producers Cut into Apache's Recent Asset Purchase

Other interest-owning producers with preferential rights have whittled away about $379 million worth of Gulf of Mexico assets that Apache Corp. agreed to buy from BP in a $1.3 billion deal in April, Apache said in a filing with the Securities and Exchange Commission (SEC) Monday (see NGI, April 24). As a result, the company said it currently is assured of acquiring only about $805 million of the BP assets, or 62% of the transaction's original value and 75% of the transaction's original reserves.

Because of these cuts and a one-month delay in finalizing Apache's recent Argentina acquisition, the company said it will reduce its annual production growth forecast to 10-15% from 12-17%. Nevertheless, Apache said its board has authorized buying up to 15 million shares of company common stock because of the production growth forecast. Two million shares have already been purchased at an average price of $71.69 per share.

About $116 million of the BP assets are still outstanding, Apache said. The final results of preferential rights exercises will not be known for a few weeks. Apache estimates that its share of the assets may end up totaling $921 million, or 83% of the reserves in the original deal. Apache is assured of acquiring nine operated fields and two nonoperated fields that have estimated proved reserves of 19 million bbl of liquids and 146 Bcf of gas. The remaining fields still subject to preferential rights (one operated and one nonoperated) could add 1 million bbl of proved liquids reserves and 15 Bcf of proved gas reserves to the total, the company said.

Apache said the assets that have cleared the preferential rights process have net production of 3,600 bbl/d of liquids and 85 MMcf/d of natural gas. Another 350 bbl/d of liquids and 10 MMcf/d of gas production is represented by the assets that may be grabbed by other producers with preferential rights.

The transaction is expected to close by the end of the second quarter. Apache said it is expected to be additive to earnings and cash flow going forward. Production from the assets is expected to grow over the next two years as fields damaged in the 2005 hurricanes are brought back online. BP retains liability for plugging and abandoning numerous platforms, wells and facilities toppled or damaged beyond repair by the hurricanes.

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