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Freeport-McMoRan Expands GOM Presence, Provides Apache More Funds for Onshore

Freeport-McMoRan Copper & Gold Inc. on Thursday paid Apache Corp. $1.4 billion for a bundle of deepwater Gulf of Mexico (GOM) prospects, shoring up an even bigger stake in the Lucius prospect, one of the biggest startups scheduled this year.

Already a big player in the GOM's shallow and deep waters, the transaction gives Freeport the biggest position in Lucius with a 35% interest; Apache held 11.7%. Anadarko Petroleum Corp. operates the project (27.8%) and other partners are ExxonMobil Corp. (15%), Brazil's Petroleo Brasilerio (9.6%), Japan's Inpex Corp. (7.2%) and Italy's Eni SpA (5.4%).

Lucius, due to begin operations during the third quarter, is set to deliver up to 80,000 b/d of oil and 450 MMcf/d of natural gas.

Freeport plans to fund the purchase by using proceeds from the $3.1 billion sale Wednesday of the Eagle Ford Shale leasehold to Encana Corp. (see Shale DailyMay 7).

Lucius is in Keathley Canyon blocks 874, 875, 918 and 919 -- one of the hottest areas of the deepwater. Freeport also acquired a 12.5% interest in the Anadarko-operated Heidelberg field, which is in 5,000 feet of water in Green Canyon blocks 859, 903, 904 and 948. Heidelberg, designed like Lucius to produce up to 80,000 b/d and 450 MMcf/d, is scheduled for startup in 2016.

The Lucius and Heidelberg would have look-alike facilities; Heidelberg is about 85% complete and the spar is to be towed later this year. Topsides fabrication is about 25% complete. Those two prospects alone are estimated to hold proved, probable and possible reserves of 55 million boe and "several hundred million boe of resource potential," Freeport noted. The Apache deal also gives Freeport interests in 11 other exploration leases with stakes of 16.67-60%. Prospects included are an offset to the Lucius field, as well as development areas of the Capri and Silver Fox/Parmer discoveries.

The transaction is set to close by the end of June.

Apache operations chief Tom Voytovich, who runs the offshore and international business, said the producer was pulling back in the expensive deepwater to concentrate on Outer Continental Shelf discoveries. Apache still would have working interests in about 650 blocks.

"We have combined our deepwater and shelf technical teams to focus on subsalt and other deeper exploration opportunities in water depths less than 1,000 feet, which have been relatively untested by industry," said Voytovich. "Discoveries on the shelf have quicker cycle times, require less capital, and provide more options to bring oil and gas to market that have "quicker cycle times, require less capital and provide more options to bring oil and gas to market."

For deepwater prospects still in the portfolio, Apache is looking for buyers or joint venture partners. In the final three months of 2013, the deepwater region contributed 9,167 boe/d to total production. None of the producing operations were involved in the sale to Freeport.

The transaction would help Apache concentrate more resources for North America's onshore, particularly the Permian Basin, where production is skyrocketing.

CEO G. Steven Farris on Thursday said the Permian Basin was driving the company's overall results. He claimed that the company was the "most active driller" in North America's onshore in the first quarter, averaging 82 operating rigs. North American liquids production increased 21% year/year and rose 6% sequentially, with production averaging 198,500 b/d. Worldwide output averaged 640,000 boe/d, or 672,000 boe/d including the discontinued operations.

From the Permian and Central U.S. regions, Apache's liquids output rose by 31,000 boe/d year/year, with total production of 239,000 boe/d. Permian output hit a record 150,000 boe/d on average, 25% higher from a year ago. Apache was running on average 38 rigs in the Permian between January and March, and it spud 202 wells gross, including 80 horizontals.

"We are currently testing new plays and completion ideas along the Gulf Coast and are encouraged by early results in Canada, where a focus on liquids-rich plays contributed to a 10% increase in crude oil and natural gas liquids compared with the preceding quarter," Farris said.

Apache's continuing operations profit was $753 million ($1.90/share) in 1Q2014, almost flat from year-ago earnings of $759 million ($1.91). Net operating cash totaled $2.3 billion, versus $2.6 billion.

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