Apache Corp. reported a $500 million deal in which it bought $200 million of oil and natural gas properties on the Gulf of Mexico Outer Continental Shelf from Shell Exploration & Production Co.
Already known for its aggressive growth, the Houston-based independent acquired 26 mature, shallow-water properties in the gulf covering 50 blocks as well as interest in two gas-condensate separation plants.
The deal also included a financing structure to ensure that Apache makes money, analysts said. Morgan Stanley will pay $300 million in return for volumetric production payments from the properties for 4 years.
In other upstream company news:
- Tulsa-based Unit Corp. signed a letter of intent to acquire all outstanding shares of PetroCorp. Inc., also of Tulsa, for a cash-and-stock deal totaling $190 million.
- Halliburton Co. announced a nonbinding heads of agreement (HOA) and additional operating losses of $104 million on the Barracuda-Caratinga project off Brazil.
- UK-based Tullow Oil PLC agreed to purchase interests in three North Sea licenses from BP PLC for £2.27 million, plus a contingent payment of £500,000. The deal involves various equity interests in southern gas basin blocks.
In pipeline and marketing company news:
- Navajo Southern Inc., a subsidiary of Dallas-based Holly Corp., bought Tulsa-based Williams Cos. Inc.'s 45% ownership interest in the 223 mile Rio Grande Pipeline Co. (RGPC) LPG system for $275 million, subject to closing adjustments.
- Apache plans this month to start directly marketing 1.2 bcfd of gas production—which includes gas from other producers—within the US and Canada. This involves 830 MMcfd in the US and 420 MMcfd in Canada.
Meanwhile, Kerr-McGee Chemical LLC, Oklahoma City, permanently closed its synthetic rutile plant in Mobile, Ala.
Apache's acquisition
Apache's total purchase price for the Shell properties was $12/boe on a proved reserves basis, Shell said. The sale was effective July 1.
The properties included 107 active wells and 17 production platforms and existing production handling agreements. Net production is 29,000 boe/d, of which 76% is gas, Shell said.
New York-based Standard & Poor's Rating Services said the deal would not affect its rating or outlook on Apache. Shell, meanwhile, said the deal was part of its portfolio upgrade, averaging $2 billion/year of divestments.
Halliburton takes loss
Halliburton's additional charges regarding the Barracuda-Caratinga project will affect second-quarter earnings, the company said. The charges followed a thorough review of the project indicating higher cost estimates, schedule extensions, and other factors.
Meanwhile, the company's engineering subsidiary KBR signed an HOA for the Barracuda-Caratinga project to resolve numerous disputed issues. Halliburton and Petroleo Brasileiro SA (Petrobras) are arguing about cost revisions that delayed a $2.5 billion order for two production vessels.
Under a contract with Petrobras, Halliburton's Brown & Root Energy Services and Halliburton Energy Services business units, together with Petrobras's exploration and production unit, are developing the Barracuda-Caratinga fields (OGJ, Sept. 11, 2000, p. 88). Petrobras will operate the fields and lease the facilities for 10 years, but the Halliburton units are undertaking the bulk of the development work.
Halliburton said participants agreed to extend the completion deadline to 2005. Previously, Petrobras said that it expects to finish the project by yearend 2004.
Petrobras agreed to pay $59 million in previously disputed claims, and the two companies will go to arbitration to settle $375 million in disputed claims.
Timing of the arbitration is unknown, Halliburton said. The HOA remains subject to lender approval and final agreement. The parties have had preliminary discussions with the lenders but no agreement for their approval has been obtained yet.
"The performance of the Barracuda-Caratinga project is very disappointing, particularly in light of the strong performance in the rest of our business," said Dave Lesar, Halliburton chairman, president, and CEO. But he said he was pleased with recent negotiations with Petrobras.
Analysts suggest more difficulties and additional charges could be encountered.
"Even if (Halliburton) gets 100% reimbursement of the $375 million in disputed claims, the project will still be in the red by about $92 million to date," said James Crandell, managing director of Lehman Bros. Oil Service Equity Research in New York.
James K. Wicklund, an analyst with Banc of America Securities LLC, said the Barracuda-Caratinga project should end by mid-2005. "There could be further charges taken before all is said and done. Halliburton has already discontinued further lump-sum, offshore field development projects."
Tullow Oil acquisition
Tullow's agreement to buy interests in certain North Sea licenses includes 22.22% interest in License P133 on Blocks 53/3a and 53/3b, 58.83% interest in License P786 on Blocks 53/3c and 53/3d, and 12% interest in License P852 on Block 53/4bF1. Tullow already holds 73.83% interest in Block 53/3c.
Contingent upon government approval, Tullow plans to succeed BP as operator of Blocks 53/3c and 53/3d.
Two of the blocks, 53/3c and 53/4bF1, contain the Horne gas discovery, made in 1992 by well 53/3c-3. The well flowed on test at a rate of 55 MMcfd of gas from Rotliegendes sand.
Tullow plans an early development of Horne, together with the nearby Wren gas discovery on Block 53/4b, in which Tullow already has 40% interest.
Navajo Southern's pipeline deal
Williams's pipeline stake in RGPC was held through its wholly owned subsidiary Juarez Pipeline Co. Navajo Southern now owns 70% of the pipeline company, while its partner BP PLC owns the remaining interest.
The pipeline was the first to carry LPG across the US-Mexico border. The US portion transports LPG from near Odessa, Tex., to near El Paso, Tex. For the Mexican portion, Pemex Gas y Petroquímica Básica's Méndez transports LPG to the Méndez terminal near Juárez, Chihuahua State, Mexico. (OGJ, Aug. 11, 1997, p. 55).
In the process of divesting assets, Williams said it has received nearly $2.75 billion cash from asset sales that have been closed this year.
Apache expands marketing operations
Already, Apache has marketed its oil and gas produced outside the US and Canada, its Canadian gas, and its US and Canadian-produced liquid hydrocarbons.
For the last 5 years, Apache has marketed its US gas through Cincinnati-based Cinergy Corp. Apache reported that its partnership with Cinergy will be terminated and its arbitration pending with Cinergy will be dismissed.
G. Steven Farris, Apache CEO and president, said that, "with more than 1 bcfd of gas production in (the US and Canada) and significant changes in the gas marketing arena, it is time for Apache to market its own gas."
Janine McArdle, corporate vice-president, will direct the newly formed oil and gas marketing department.
"In this new era of gas marketing, we believe more direct interaction between producers and consumers is good for both ends of the energy chain," McArdle noted.
Kerr-McGee closes Alabama plant
The June 5 closing of Kerr-McGee's synthetic rutile plant was part of the company's overall plan to enhance operating profitability and focus on its core pigment business, said Pete Woodward, senior vice-president of chemicals.
The plant processed and supplied part of the feedstock for Kerr-McGee Corp.'s two titanium dioxide pigment plants. The company can purchase the feedstock more economically through its supply chain initiatives than it can manufacture the feedstock.
Kerr-McGee anticipates that supply chain programs will result in annual operating savings of $25-30 million, beginning in 2004.
The estimated cost of closing the plant, including decommissioning expenses, is $15 million after taxes. Kerr-McGee plans to account for this cost as a special charge in the second quarter of 2003. The Mobile plant was built in 1976 and employed 140 people.