Apache Corp. agreed Monday to pay $1.05 billion to acquire Devon Energy Corp.’s Gulf of Mexico (GOM) properties on the Outer Continental Shelf along the Texas, Louisiana and Alabama coasts.

The shallow water assets, which Devon put up for sale last year, hold an estimated 83 million boe of net proved and probable reserves and are projected to produce a net 55 MMcf/d of natural gas and 9,500 b/d of liquid hydrocarbons. Liquid hydrocarbons would contribute more than 70% of the projected revenues from the acquired properties; the estimated proved reserves are split nearly evenly between natural gas, and oil and natural gas liquids, Apache said.

Devon last year began restructuring and said it would sell its GOM and international assets to train its focus on North America’s unconventional resources onshore (see Daily GPI, Nov. 17, 2009). In March all of its deepwater GOM, Brazil and Azerbaijan assets were sold to BP plc for $7 billion (see Daily GPI, March 12).

“When we first announced our plans to reposition Devon, we expected total after-tax proceeds of between $4.5 and $7.5 billion,” said Devon CEO Larry Nichols. “This sale of the remaining Gulf of Mexico assets, combined with our previously announced divestitures of $8.3 billion, ensures that we will exceed the upper end of that range. Furthermore, we are pleased to have a single purchaser for the Shelf assets with the financial strength and experience of Apache.”

“Devon’s exit from the Gulf of Mexico creates a great opportunity for Apache to add one of the best remaining Shelf asset portfolios to our existing core area,” said Apache CEO G. Steven Farris.

“At 3.7 times estimated cash flow, this transaction is immediately additive to Apache’s per-share earnings and cash flow, generating excess cash flow that can be used to further Apache’s growth through continued development of our global exploration program.”

Jon Jeppesen, who runs Apache’s Gulf Coast Region division, said the properties to be acquired are “well maintained, high-quality assets that fit well with Apache’s existing infrastructure and play to the strengths that come with our experience operating on the Shelf — exploiting the current production base and capturing the upside potential.

“Many of these properties are geologically complex fields that contain large structures with multiple pay intervals that we believe are underexploited. The prospect inventory includes high-potential trend exploration opportunities in the Norphlet play and highly prospective exploratory acreage off the Texas coast.”

Projected daily production from the acquired assets through the rest of 2010 “equals 3% of Apache’s fourth quarter 2009 worldwide daily production,” the Houston-based producer said. When the transaction is completed, the GOM Shelf’s share of Apache’s estimated worldwide production “will be slightly less than 20%.”

Apache already is the GOM’s largest held-by-production acreage owner and the second-largest producer in waters less than 1,200 feet deep. The Devon assets cover 477,000 net acres across 158 blocks. The fields have 80 platforms and 211 production caissons in waters up to 450 feet deep.

Seven major field areas hold 90% of the proved reserves, and Devon now operates 75% of the production. Based on initial evaluation, Apache said it has identified 79 recompletion opportunities and 26 drilling prospects across the acquired assets.

Apache plans to fund the acquisition primarily with cash, supplemented by commercial paper. Apache has hedged a portion of the production for three years using swaps and collars to protect the economics of the transaction, which became effective Jan. 1. Closing is expected in early June.

Completion of the transaction is subject to preferential rights to purchase held by the other working interest owners in the properties, as well as customary closing conditions and regulatory approvals.

Devon said it now has completed the sale of most of the assets it put up for sale. Data rooms for the remaining international assets are open; the divestitures are slated to be completed by year’s end.

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