In its largest deal ever, Houston-based Apache Corp. has acquired a $1.3 billion package of legacy oil and gas-producing assets from BP, with 61 producing fields in the Gulf of Mexico (GOM) and two in the North Sea. The acquisition adds an estimated 29% to Apache’s 2002 production base, and 14% to its year-end 2002 assets on a pro-forma basis.

According to Apache, the acquisition provides an estimated net proved reserves of 233.3 MMboe, with 20% natural gas, and 2003 average daily production of 198 MMcf and 65,500 bbl. Most of the production from the acquired properties already has been sold in long-term contracts over the next two years. CFO Roger Plank said the long-term contracts are worth about $1.3 billion, equalling the price of the assets.

CEO G. Steven Farris said Apache’s new GOM assets, which cost about $670 million, add “production and reserves and a new exploitation portfolio in North America’s strongest gas market.” Apache generated $450 million in net operating income from the GOM in 2002, and the newest acquisition will make it one of the top players in the region. Meanwhile, the North Sea assets cement the independent’s new core operating area, and will make it the largest crude oil producer in the UK sector of the North Sea, he said.

The GOM properties, which hold about 279.9 Bcf and 38.9 MM bbl — 55% natural gas — cost Apache $1.31/Mcfe or $7.83/boe. They are located offshore Texas and Louisiana in shallow water where Apache already holds substantial existing operations. Net proved reserves total 85.6 MMboe. The assets comprise 113 total blocks and 61 fields; 70% of the production is operated. Apache will acquire a 100% working interest in 19 of the fields.

Approximately two-thirds of the reserves and daily oil production Apache is acquiring from BP are in the North Sea’s Forties oil field, where Apache will become field operator with a 96% working interest. Discovered by BP in 1970, the Forties field is the largest ever found in the UK sector of the North Sea and still ranks eighth in production and reserves after having produced approximately 2.5 billion bbl to date. Apache’s acquisition economics estimate average 2003 production of 45,100 bbl/d and net proved reserves of 147.6 million bb. Apache’s production will be transported via the Forties Pipeline System, which BP will retain.

Apache has a physical sale agreement with BP to take all of Apache’s North Sea production for two years at a combination of fixed and floating prices. A substantial portion of the oil and gas production, both in the North Sea and the GOM, has been hedged at “favorable prices” through 2004, the company said. Hedging price details were not disclosed.

The effective date of the transaction is Jan. 1, 2003, with closing on the Gulf portion anticipated on or about March 31 and the North Sea portion projected for late in the second quarter. Both closings are subject to U.S. and UK regulatory approvals. Apache intends to finance the acquisition with a combination of internally generated funds, equity and debt. Financing will be with $350-$400 million of equity and $800-$900 million of debt. Peak debt/total capital will rise to 36%, up from 32% for 2002.

Morgan Stanley served as financial adviser to Apache for the transaction. Maps and other materials relating to the BP transaction are available on Apache’s web site at www.apachecorp.com.

In conjunction with the acquisition announcement, Apache also said it will offer 6.2 million shares of its common stock, and expects to price the offering this week. These securities will be issued under one of Apache’s existing shelf registrations with the Securities and Exchange Commission. Apache also has granted the underwriters an option to purchase up to an additional 930,000 shares to cover over-allotments, if there are any.

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