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Apache Pays $715 M for 22 of Shell's GOM Fields

April 30, 1999
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Apache Pays $715 M for 22 of Shell's GOM Fields

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

"The transaction is expected to add significantly to earnings/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 add shareholder value through a program of recompletions, workovers and drilling."

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

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

"I think I can speak for everyone on the Apache side when I say we are more excited about this transaction from the perspective of asset quality and financial impact than perhaps any other deal we have ever done," said Bob Dye, Apache's vice president of investor relations, in a conference call on Thursday.

Apache made the announcement on the heels of a poor 1Q99 earnings report. It accrued a first quarter loss of $3.6 million, or 4 cents/share as a result of low oil and gas prices. Apache reported 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 in the year-earlier period. Gas production dropped to 572 million cubic feet (MMcf) per day, from 611 MMcf per day.

For Shell, the sale represents an opportunity to revise its grandiose GOM portfolio. "This adjustment of our portfolio in the Gulf of Mexico will allow for better allocation and focus of our staff and capital," commented Walter van de Vijver, Shell Exploration & Production Company's president and chief executive officer. "Given the high level of activity in Shell's deep-water and newer Shelf fields, coupled with capital expenditure priorities, our intent is to focus our activities in those areas with longer term strategic value."

The sale involves half of Shell's producing properties in shallow waters of the GOM, but only one-fourth of Shell's daily gross production from those waters. Both companies said the deal will close within 30 days.

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