On the heels of an agreement to buy Devon Energy Corp.’s Outer Continental Shelf properties in the Gulf of Mexico (GOM), Apache Corp. on Thursday said it has a cash-and-stock offer worth an estimated $2.7 billion on the table to merge with Mariner Energy Inc., whose portfolio is concentrated in the GOM.

At the end of 2009 Mariner had interests in about 240 blocks on the Shelf and 100 blocks in deepwater. About 85% of the company’s production comes from offshore, with a growing share of that from deepwater developments that include Geauxpher, in which it partners with Apache, as well as Bass Lite and Northwest Hansen.

Mariner, based in Houston like Apache, also has seven GOM discoveries in development — including interests in Lucius and Heidelberg — and more than 50 prospects.

Onshore Mariner’s portfolio is concentrated in the Permian Basin and Gulf Coast, which comprise more than half of the company’s nearly 1.1 Tcfe in proved reserves. At the end of 2009 Mariner held net interests in more than 185,000 acres. Operations are focused on infill drilling and exploration, with the company holding more than 1,000 potential drilling locations.

“This is a strategic step and a natural extension into the deepwater Gulf for Apache,” said Apache CEO G. Steven Farris. “Mariner provides an exciting new platform for growth in the deepwater and complements our strengths in the Gulf Shelf and the Permian Basin. Based on our experience working with the Mariner team, we also believe the two companies will make an excellent cultural fit.”

Under the agreement, Mariner shareholders would receive, in aggregate, 0.17043 of a share of Apache common stock and $7.80 in cash for each outstanding share of Mariner’s common stock. Based on Apache’s closing stock price of $108.06 on Wednesday, the transaction values Mariner’s shares at $26.22/share or about $2.7 billion. Apache also would assume Mariner’s debt, estimated at $1.2 billion.

“The combination with Apache is an excellent outcome for Mariner’s stakeholders,” said Mariner CEO Scott D. Josey. “Our shareholders will be rewarded for their faith and support in our company with the opportunity to further benefit from the upside provided from the merger. Our partners will work with a world-class company with the financial and technical resources to fully exploit our assets. Our employees will benefit from the opportunities provided in a large company with values similar to Mariner’s.”

In February Mariner produced an estimated 63,000 boe/d from the GOM Shelf and deepwater, the Permian Basin and unconventional onshore plays. At the end of 2009 Mariner had estimated proved reserves of 181 million boe (47% liquid hydrocarbons) as well as unbooked resource potential of 2 billion boe.

“We have considered extending our Gulf of Mexico operations into the deepwater for a number of years,” Farris said. “This is the right set of assets and the right time for Apache to expand its deepwater presence.

“Mariner brings an inventory of developments and prospects that will jump-start our position in the deepwater Gulf; Apache’s financial resources will maximize the value of the portfolio,” he said. “It’s the right time because recent advances in seismic technology and continued enhancements in facilities design have reduced the risks in one of the world’s most prolific oil exploration basins.”

Apache and Mariner teamed up in the 2008 deepwater Geauxpher discovery and development at Garden Banks 462 (see Daily GPI, May 28, 2009). “Mariner’s skilled, experienced professionals share our values and sense of urgency,” Farris said.

Mariner also has more than 240 blocks on the GOM Shelf and more than 200,000 net acres across several emerging onshore plays. “Mariner’s Gulf Shelf and Permian assets are both excellent fits with our existing core areas,” Farris said. “These fields provide strong cash flow, drilling inventory and upside potential.”

Apache’s transaction with Devon would add production of about 19,000 boe/d with year-end 2009 estimated proved and probable reserves of 83 million boe across 158 blocks offshore (see Daily GPI, April 13).

“Combining with Mariner enhances Apache’s global portfolio, which is balanced in terms of commodity mix, geography and geology,” Farris said. “This transaction is similar to our earlier strategic steps, bringing near-term production and cash flow as well as long-term upside potential from a large acreage position with identified exploration opportunities.”

The transaction, which is scheduled to be completed in 3Q2010, is subject to Mariner shareholder and customary regulatory approvals.

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