In a huge transaction Friday, Anadarko Petroleum Corp. announced it will sell nearly all of its Gulf of Mexico (GOM) Shelf properties through two transactions totaling $1.312 billion. Morgan Stanley Capital Group Inc. bought an overriding royalty interest for $775 million, while the shallow water properties were sold to Apache Corp. for $537 million.
The package represents an estimated 98.6 MMboe of proved reserves as of year-end 2003 and current daily net production of approximately 46,000 boe. Upon completion of the announced sales, Anadarko will operate only one offshore platform, the newly commissioned Marco Polo facility at deepwater Green Canyon Block 608. The company said it would focus exploration efforts on the deepwater Gulf. Anadarko also is developing gas reserves in Algeria and Qatar and announced last week the purchase of an LNG import terminal project in Nova Scotia (see Daily GPI, Aug. 13).
“In the past, we’ve preferred to purchase from the majors instead of the independents, but we were attracted to this because Anadarko is pulling out of the Shelf,” said Bob Dye, Apache’s vice president of Investor Relations. “Anadarko is known for creating value through discovery, and their record is excellent, by the way…Apache’s focus in the Gulf of Mexico is different. We create value through exploitation, with less focus on higher risk exploration. When we have the opportunity, we like to focus on the lower risk opportunity, which is what we do well.” Dye said the new assets already are proven, which makes them a perfect fit.
The deal with Morgan Stanley, which preceded the sale of the assets to Apache, also benefits Apache, said Dye. Anadarko’s sale to Morgan Stanley is commonly known in the industry as a volumetric production payment (VPP), which provides the buyer ownership of a certain volume of oil and gas to be produced from the properties, which is delivered to the VPP buyer over several years. Morgan Stanley acquired a royalty interest in 24 MMboe of lower-risk reserves estimated to be produced over the next four years.
Apache said the sale’s cost per equivalent barrel of oil totaled $15.46, with Apache paying $8.83/boe, while Morgan Stanley’s cost is $32.25/boe. Apache will record a $99 million liability to reflect the future cost of producing and delivering the reserves to Morgan Stanley but will not book these reserves. Apache will book the remaining reserves at a lower cost per boe, and it retains all of the potential upside from future exploration and development activities.
The acquisition, which is effective Oct. 1, includes 78 fields on 241 offshore blocks (approximately 693,000 net acres), including 93 undeveloped blocks, and 112 platforms. Apache will operate 53 of the fields with 80% of the production and 85% of the net reserves. Apache will book proved reserves of approximately 61 MMboe, of which 51% is natural gas. Apache estimates the properties’ probable reserves at an additional 23 MMboe.
Dye pointed out that Apache “only had a week” to evaluate the assets, and it concentrated on the larger fields. Apache engineers believe that the new fields’ production will be increased by the fourth quarter and into 2005.
Apache’s share of the acquired production is estimated to average 50 MMcf/d of natural gas and 3,000 bbl/d of liquid hydrocarbons in the current-year fourth quarter. Production is anticipated to rise to an annual average of 70 MMcf/d and 6,500 bbl/d as the Tarantula field in South Timbalier 308 comes on stream in early 2005.
Apache also hedged 70,000, 90,000 and 90,000 MMBtu/d over the next three years. The hedges are in the form of costless collars with floors of $6.00, $5.50 and $5.25/MMBtu and ceilings of $6.78, $6.66 and $6.20/MMBtu. On the oil, Apache has costless collars on 6,000, 8,000 and 7,000 bbl/d through 2007, with floors of $37.00, $34.00 and $33.00/bbl and ceilings of $43.50, $41.50 and $39.25/bbl.
“This transaction enables Apache to grow reserves and production at a reasonable cost during a time when commodity prices and acquisition costs are high,” said Apache CEO G. Steven Farris. “These properties will be immediately accretive to our per-share results and will add significant drilling and operational enhancement opportunities in the years ahead.” Farris added that Anadarko and Apache “worked extremely well together and we thank Anadarko for the opportunity to consummate an expeditious transaction…Now, it’s time for our people to do what they do best and get after it.”
The new GOM fields are strategically aligned with Apache’s existing Shelf acreage, said Farris, and “that means we can easily and economically integrate them with our current holdings in the Gulf.”
For Anadarko, the sale represents “a major milestone in the execution of our refocused strategy, which is intended to make Anadarko more competitive by focusing on the areas where we can achieve sustainable growth and attractive returns, such as exploration and unconventional resource development and exploitation,” said Anadarko CEO Jim Hackett. “The price offered for our Shelf properties is indicative of the high quality of assets we are divesting. These properties should be worth more to those whose strategic focus is different than ours.”
Hackett said that “by exiting the Shelf, we can focus our Gulf program on the deepwater, which is expected to be the single largest contributor to Anadarko’s targeted 5-to-9% annual growth rate through 2009.”
Anadarko’s deepwater development is Marco Polo, in which it holds 100% working interest. The project is located in 4,300 feet of water on Green Canyon Block 608. In 2003, the final two development wells were drilled. A floating production platform has been installed and will have the capacity to handle 120,000 bb’/d of oil and 300 MMcf/d of gas. GulfTerra and Cal Dive International own the platform, and Anadarko will be the operator. Production is expected to begin in mid-2004.
Anadarko CFO Jim Larson added that the sales agreements offered “greater confidence that we will exceed our targeted minimum after-tax proceeds of $2.5 billion from the asset realignment. We anticipate that approximately $1.4 billion of proceeds from Anadarko’s overall planned divestiture program will be earmarked for net debt reduction, with the remainder used primarily to repurchase stock. This transaction will go a long way towards enabling us to deliver on that promise.”
Transaction advisers for Anadarko were Deutsche Bank Securities Inc. and Randall & Dewey LLC.
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