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Phillips, Apache To Market Canadian Assets

Phillips, Apache To Market Canadian Assets

With oil and natural gas prices soaring, the market for Canadian producing and development properties has been heating up, as evidenced by property sales announced recently by Phillips Petroleum and Apache Canada.

In a strategic shift of production area focus, Phillips put up a for-sale sign on its sizeable Zama oil and gas property located in Northwestern Alberta, and has contracted Waterous & Co. of Calgary to act as its financial advisor on the transaction. Waterous said the offering was the single largest Canadian asset ever made available in a public offering.

"Basically, these Zama assets have not developed to a size or a scale sufficient enough to give interest to us any further," said Phillips spokeswoman Kristie DesJarlais. "We have the Alaska assets, and we have a lot of other larger assets in Bohai Bay in China, Venezuela and the Timor Sea. Those are very large assets, and this one [Zama] is just not fitting into our core focus area, so we decided to market it." Earlier this year Phillips acquired a 36.5% interest in the Prudhoe Bay Alaska field, buying out Arco's share. Along with its other interests there, Phillips now holds the title of largest oil and gas producer in Alaska.

Zama currently produces 16,500 boe/d, including 7,500 b/d of light oil and natural gas liquids and 90 MMcf/d of natural gas on 212,000 acres of land, with an additional 275,000 acres of undeveloped land included in the offering. The sale also includes three gas plants with 160 MMcf/d capacity, a 150-mile gas gathering system, 12 compressor stations and seven crude oil processing facilities. Waterous said there is also room for expansion, with an additional 1.5 million acres of Crown land available in the immediate area.

Phillips estimates that cash flow for the Zama property in 2000 will be C$155 million.

Waterous also is handling Apache's recently announced offering which includes five oil and gas production areas in Alberta and British Columbia. Current production from the areas that Apache considers non-core is estimated at 2,500 boe/d, of which 72% is natural gas. "We do this continuously, we are a big acquirer and we are constantly reviewing our properties," said Tony Lentini, an Apache spokesman. Lentini likened the purchase/sell system to the food chain. When fields become uneconomical for larger companies such as Shell to continue to develop, they sell them to smaller companies such as Apache that can still find value. Then when the field becomes a drain on Apache, it is sold to even smaller companies, he said.

An analyst noted that the timing of these offerings seemed to align perfectly with natural gas prices being on the rise again. "Selling a property with prices at their current $6-plus level, instead of when prices were $4 to $5 can make all the difference in the going purchase price," he advised.

Both Phillips and Apache denied there was any correlation to the timing. DesJarlais said that high gas prices had nothing to do with the decision to sell the Zama assets, it was just a strategy call. But she added, "We certainly expect that the current price situation will be reflected in the value of the assets."

"Naturally when the price is good, maybe you will get a better price for it, but it is not something we said 'oh we are going to put all of these on right now because of high prices,' it is just something we do regularly," Lentini said. He noted that Apache has made purchases during this time period as well.

Waterous said Phillips is interested in a cash transaction or a swap into natural gas properties in the San Juan Basin, the Rockies, North Louisiana or the Permian Basin. Phillips will open the data room this week, and expects to have the sale completed during the first quarter of 2001.

DesJarlais pointed out that the Zama sale does not mark an exit for Phillips from Canada. She said the company plans to keep properties it holds interests in, but does not operate.

For Apache's offering, Waterous said marketing materials will be available soon and it expects proposals will be received by Dec. 14.

Alex Steis

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