With oil and natural gas prices soaring, the market for Canadianproducing and development properties has been heating up, asevidenced by property sales announced recently by PhillipsPetroleum and Apache Canada.

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

“Basically, these Zama assets have not developed to a size or ascale sufficient enough to give interest to us any further,” saidPhillips spokeswoman Kristie DesJarlais. “We have the Alaskaassets, and we have a lot of other larger assets in Bohai Bay inChina, 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 a36.5% interest in the Prudhoe Bay Alaska field, buying out Arco’sshare. Along with its other interests there, Phillips now holds thetitle of largest oil and gas producer in Alaska.

Zama currently produces 16,500 boe/d, including 7,500 b/d oflight oil and natural gas liquids and 90 MMcf/d of natural gas on212,000 acres of land, with an additional 275,000 acres ofundeveloped land included in the offering. The sale also includesthree gas plants with 160 MMcf/d capacity, a 150-mile gas gatheringsystem, 12 compressor stations and seven crude oil processingfacilities. Waterous said there is also room for expansion, with anadditional 1.5 million acres of Crown land available in theimmediate area.

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

Waterous also is handling Apache’s recently announced offeringwhich includes five oil and gas production areas in Alberta andBritish Columbia. Current production from the areas that Apacheconsiders non-core is estimated at 2,500 boe/d, of which 72% isnatural gas. “We do this continuously, we are a big acquirer and weare constantly reviewing our properties,” said Tony Lentini, anApache spokesman. Lentini likened the purchase/sell system to thefood chain. When fields become uneconomical for larger companiessuch as Shell to continue to develop, they sell them to smallercompanies such as Apache that can still find value. Then when thefield becomes a drain on Apache, it is sold to even smallercompanies, he said.

An analyst noted that the timing of these offerings seemed toalign 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 inthe going purchase price,” he advised.

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

“Naturally when the price is good, maybe you will get a betterprice for it, but it is not something we said ‘oh we are going toput all of these on right now because of high prices,’ it is justsomething we do regularly,” Lentini said. He noted that Apache hasmade purchases during this time period as well.

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

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

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

Alex Steis

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