Combating its poor first quarter performance, Houston-basedApache Corp. dramatically grew its asset base Thursday, paying $715million and transferring one million common shares of stock toShell in exchange for 22 fields in the Outer Continental Shelf ofthe Gulf of Mexico (GOM). Apache expects the transaction to add 20cents/share of value in 1999. The acquisition will go into effectretroactive to March 1.

“The transaction is expected to add significantly toearnings/share and cash flow/share,” said Apache President G.Steven Farris. “In addition, while service costs are appropriate,we intend to accelerate production and reduce costs to addshareholder value through a program of recompletions, workovers anddrilling.”

Apache will operate 18 of the 22 fields it has acquired. InFebruary, the properties recorded average net production of 24,900barrels of oil and 125 MMcf/d. The fields’ production and reservemix is 54% oil and 46% natural gas. The properties are in waterdepths of less than 700 feet. The deal also includes 16 undevelopedblocks and access to 3-D seismic data covering more than 1,000blocks throughout the Gulf.

The transaction paid immediate dividends for Apache. Its stockskyrocketed up $3.06 to $31.69 in early Thursday afternoon trading.

“I think I can speak for everyone on the Apache side when I saywe are more excited about this transaction from the perspective ofasset quality and financial impact than perhaps any other deal wehave ever done,” said Bob Dye, Apache’s vice president of investorrelations, in a conference call on Thursday.

Apache made the announcement on the heels of a poor 1Q99earnings report. It accrued a first quarter loss of $3.6 million,or 4 cents/share as a result of low oil and gas prices. Apachereported net income of $17.4 million, or 18 cents/share, in 1Q98.The company realized $1.69/Mcf of gas, compared with $1.98/Mcf inthe year-earlier period. Gas production dropped to 572 millioncubic feet (MMcf) per day, from 611 MMcf per day.

For Shell, the sale represents an opportunity to revise itsgrandiose GOM portfolio. “This adjustment of our portfolio in theGulf of Mexico will allow for better allocation and focus of ourstaff and capital,” commented Walter van de Vijver, ShellExploration & Production Company’s president and chiefexecutive officer. “Given the high level of activity in Shell’sdeep-water and newer Shelf fields, coupled with capital expenditurepriorities, our intent is to focus our activities in those areaswith longer term strategic value.”

The sale involves half of Shell’s producing properties inshallow waters of the GOM, but only one-fourth of Shell’s dailygross production from those waters. Both companies said the dealwill close within 30 days.

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