Apache Corp. has finalized a deal to acquire BP’s remaining producing properties on the Outer Continental Shelf (OCS) of the Gulf of Mexico for $1.3 billion in cash.

The transaction will bring Apache 18 producing fields (11 of which are operated) covering 92 blocks with estimated proved reserves of 27 million bbl of liquid hydrocarbons and 185 Bcf of natural gas. Apache has identified 50 drilling locations on the properties and an additional 4 million bbl of liquids and 26 Bcf of gas in probable and possible reserves. Some of the fields are subject to exercise of preferential rights to purchase by other interest owners. The transaction is subject to government approvals and is expected to close by the end of the second quarter.

From April 1, the effective date of the transaction, to year-end, the assets are expected to provide average daily production of 7,100 bbl of oil, 1,500 bbl of natural gas liquids and 108 MMcf of natural gas, generating $320 million of operating cash flow based on prices factored into the deal. Production and cash flow are expected to rise next year as fields damaged during the 2005 hurricane season are brought back online.

“Nearly half of the reserves in the transaction are in properties in which we already own an interest, including the Grand Isle 40s/West Delta complex — one of the largest fields ever discovered in the Gulf,” said Apache CEO G. Steven Farris. “We know these assets very well, and gaining operatorship will enable Apache to drive the development program, leverage infrastructure and realize significant operating synergies.

“Apache built its Gulf of Mexico Shelf core area over the past 15 years through $2.7 billion in acquisitions of producing assets… Over the years, Apache has drilled more than 350 wells on the acquired properties and reinvested in the Gulf more than $2.3 billion of the $6.2 billion of cash flow generated in the Gulf.”

In another $1.3 billion deal, this one in 2003, Apache acquired a package of legacy oil- and gas-producing assets from BP, with 61 producing fields in the Gulf of Mexico and two in the North Sea (see Daily GPI, Jan. 14, 2003). In 2000, Apache agreed to buy the offshore Gulf of Mexico interests of Occidental Petroleum Corp. for $385 million (see Daily GPI, July 21, 2000).

“At the end of 2005, we have recovered all of our original investment, paid for all of the additional capital incurred and generated in excess of $1 billion of free cash, with proved remaining reserves from these properties of 270 MMboe at the end of 2005,” Farris said.

Apache plans to finance the deal with commercial paper. Post-transaction, Apache’s debt is projected to remain below 23% of total capitalization. The company has hedged about half of the projected 2006, 2007 and 2008 oil and gas production from the acquired properties at prices that protect deal economics while giving Apache upside exposure to higher prices.

This is the latest of three deals that are expected to add 14,700 bbl of liquids and 142 MMcf of natural gas to Apache’s 2006 average worldwide daily production, based on expected closing dates. The added production is equal to 9.3% of Apache’s 2005 average daily output.

“Over the last five years, we have acquired, in negotiated transactions primarily from companies far larger than ourselves, more than $4.2 billion of assets with proven reserves of 669 MMboe,” Farris said. “Over that same period we have drilled nearly 7,800 wells that added 1.2 billion boe.”

Apache also said its board authorized the repurchase of up to 15 million shares of its common stock, about $1 billion worth at recent share prices.

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