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Apache Buys Occidental's Gulf Assets for $385 Million
Houston's Apache Corp. remains in an acquiring mood, agreeing last week to buy Occidental Petroleum Corp.'s offshore oil and gas interests in the Gulf of Mexico for $385 million. The deal calls for Apache to pay Occidental $341 million for the properties this year, then pay $11 million a year for the next four years. Closing is expected by mid-August.
The Gulf of Mexico property includes 32 fields, half of them operated, on 93 blocks with total proved reserves of 56.8 MMBoe. Also included are proprietary 3-D seismic data on 113 blocks that cover about 1,022 square miles. Apache estimates that daily net production from the new properties through year-end will be 107 MMcf, and 7,800 barrels of oil.
"These are excellent assets with upside potential we can realize through the drill bit," said G. Steven Farris, Apache's president. He said most of the acreage is "near or adjacent to Apache blocks and complements our existing 3-D seismic data and operations."
So far, Farris said Apache has identified 50 drilling locations and 150 behind-pipe recompletion opportunities on the properties, but added that the company protected the "economics of the transaction with a collar," preserving the potential for significantly higher gas prices.
Following the agreement, Apache announced that it will begin offering seven million shares of common stock through underwriters managed by Merrill Lynch & Co., Goldman Sachs & Co., Salomon Smith Barney and Credit Suisse First Boston. Those proceeds will be used to pay down short-term debt that came with all of Apache's acquisitions in the past year.
"We're in an ideal environment for Apache to capitalize on opportunities for adding value, just as we have in the past," Farris said. "This offering will enhance Apache's financial flexibility to build upon our track record." Apache expects the deal to immediate add to its earnings per share and cash flow.
Just last month, Apache acquired fields in Texas and New Mexico for more than $300 million from Collins & Ware Inc. (see NGI, June 19). Last October, it acquired producing properties and other assets in Alberta, British Columbia and Saskatchewan, Canada with proved reserves of 87.5 MMBoe from Shell Canada Limited for C$770 million (see NGI, Oct. 11, 1999).
Meanwhile, Los Angeles-based Occidental has been selling its smaller, less profitable properties and buying larger producing fields in the United States. In March, Occidental agreed to spend $3.6 billion for Altura Energy Ltd., a U.S. joint venture of BP Amoco Plc and Shell Oil Co. (see NGI, March 13). Altura has proven reserves of about 850 million barrels of oil and gas.
Occidental is expected to record a pre-tax gain of $65 million on the sale. It has targeted $2 billion in debt reduction this year, and the Apache deal nearly meets that goal. Proceeds from the Apache sale are expected to raise about $1.8 billion.
"We expect to accomplish all our debt-reduction goals this year and maintain our momentum of our debt-reduction programs into 2001," said Occidental CEO Ray Irani.
Apache also said that when it officially announces its second quarter net income on Thursday (July 27), it expects to report earnings of $1.22 per share, ahead of the average Wall Street estimate of $1.08 a share calculated by First Call/Thompson Financial. The gains compare with 1999 net income of $0.28 cents per share.
Occidental reported its second quarter earnings last week, announcing that it had its "best quarter in history" with net income of $564 million ($1.53 per share). The 2000 second quarter compares with 1999 net income of $9 million ($.02 per share).
Carolyn Davis, Houston
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