Apache Corp., Houston, continues to wield its purchasing power in scooping up more assets that will strengthen its core areas of operations. Apache said early last week that it will buy essentially all of Repsol-YPF SA's exploration and production properties in Egypt's western desert for $410 million.
In merger and acquisition news, Can- adian oil and gas firms experienced yet another spurt of M&A activity recently:
- Anderson Exploration Ltd. offered to purchase Numac Energy Inc. in a friendly takeover worth $960 million (Can.), including $135 million in debt.
- A unit of Alberta Energy Co. Ltd. (AEC), Calgary, bought privately owned Ballard Petroleum LLC, Billings, Mont., for $340 million (Can.), acquiring 280 bcf of proven and probable gas reserves in the Mamm Creek field of northwest Colorado.
Apache purchase
"We have done larger transactions over the last 3-4 years, but this ranks up there with the potential of one of the more strategic ones we've done," said G. Steven Farris, Apache's president and chief operating officer, in a telephone conference with financial analysts.
"It really does solidify our position in Egypt. It makes us the No. 1 liquids producer in the western desert and No. 3 in Egypt overall," he said.
The acquisition will also make Apache the second largest producer of natural gas in the western desert. The company plans to finance the acquisition through debt, which it expects to pay off quickly from the increased cash flow generated.
Apache also plans to spend $350 million over the next 3 years to boost production from the Khalda and Khalda Offset concessions.
"One of the most significant things about concession terms in Egypt is that because of current production, the $350 million will be paid out of the 40% of each barrel that goes to cost-recovery already being generated. We have a pool of about $1 billion to spend on investments at Khalda," said Farris.
Deal details
With its acquisition of Repsol-YPF's interests in seven concessions, Apache will "operate 75,000 b/d of oil and 220 MMcfd of gas, which makes up 10% of Egypt's overall production. Equally important, we now operate all of our production in Egypt," Farris said.
Repsol-YPF's properties include interests in seven western desert concessions; Apache currently holds interests in six of the seven. Of the seven concessions involved, officials said, Repsol-YPF operates five, Apache operates one, and the remaining concession is operated by a unit of Royal Dutch/Shell Group.
In the combined Khalda-Khalda Offset concession, Apache had a 40% contractor interest and Repsol-YPF had a 50% contractor interest.
With the acquisition, Apache also gains another 33% contractor interest in the prospective West Mediterranean concession, increasing its contractor interest to 100% in the onshore portion and in waters as deep as 100 m. Apache's interest in the deepwater portion will remain at 67%, with Repsol-YPF retaining its 33% interest.
The concession's production currently averages 2,300 b/d of liquid hydrocarbons.
Apache also secures an additional 31.8% contractor interest in the Ras Kanayes concession, raising its total interest there to 57.3%.
Apache's interest in the Ras el Hekma concession increases to 90% from 40%, while its interest in the Northeast Abu Gharadig concession rises to 48% from 24%.
The transaction also provides Apache interests in one new operated concession and one new operated development lease: the South Umbarka concession, with 100%; and the Umbarka development lease, with 50%.
Umbarka is producing 1,135 b/d of oil, and South Umbarka is producing 3,000 b/d of oil and condensate and 18 MMcfd of natural gas.
Apache has been eyeing the properties for some time. "Their move into South America with the purchase of YPF [SA] really made the transaction positive for both sides," Farris said.
Net production from the acquisition based on current prices is about 13,800 b/d and 60 MMcfd. "With current production, we already have 23,500 b/d of liquids and 50 MMcfd of gas; our combined net production jumps to over 37,000 b/d and 110 MMcfd of gas," said Farris.
Exercise of preferential rights by a 10% interest holder in Khalda would lower the expected production gain from the acquisition.
Apache officials would not comment on the amount of reserves acquired in that deal because of "some commercial issues still outstanding." However, they said they hope to close the deal as soon as possible, during the second quarter at the latest, with an effective date of Jan. 1. They want to take over operation of the Khalda concession as soon as possible.
"Khalda is Apache's largest producing concession and has one of the largest upsides. Khalda development proper is 320,000 acres," said Farris.
It produces 30,000 b/d of oil and 10,000 b/d of natural gas liquids along with 200 MMcfd of gas through two processing plants.
Exploration, development
Apache officials have already identified 120 Khalda sites to be drilled at a total cost of $150 million. They identified 76 development and exploration drilling opportunities on the Khalda concession and 12 exploration sites on the Khalda Offset.
"We've identified 17 locations on Umbarka that we're picking up, which is really right in the middle of the Khalda Offset. We also identified three locations on Ras Kanayes," said Farris.
In the Khalda development area, Apache plans a massive $50 million recompletion and workover program, involving 51 out of 110 wells and including 275 pump replacements and 38 pump size upgrades.
"We want to increase the efficiency of the submersible pumps. Many of the pumps simply don't work or they are the wrong size," Farris said. The company also is considering using beam lifts in the Khalda-Khalda Offset concessions.
Apache also expects to invest $30 million in a Khalda waterflood project.
"Recovery of the waterfloods has been pretty inefficient. Waterfloods have historically been poorly designed, and that's really an effect of increasingly finding additional reserves on old waterfloods. We no longer have patterns," said Farris. "We want to redo all of the patterns associated with the waterfloods."
He said, "Obviously, [the waterflooded fields] are structurally complex, but their structural mapping is totally incomplete, and there's little downhole pressure available. We also do not have individual well tests on any of the waterflood fields."
That proposed program will include pump upgrades, water shutoffs, well conversions, new injections, and new development well drilling.
"We'd also like to transfer some of our hard-rock fracture technology and knowledge from the [US] Midcontinent to Egypt," said Farris. "We have over 150 potential frac stimulation candidates. We will choose the first ones very carefully to have success."
As the field is expanded, workers will upgrade the two gas plants and lay a pipeline between them to increase deliverability. Improving the plant efficiencies should cost about $125 million, said Farris.
Anderson-Numac deal
Anderson's $8/share offer for Numac includes the assumption of $135 million in Numac debt. The deal was recommended by both Anderson and Numac directors. The offer is a 25% premium over Numac's closing price on the Toronto Stock Exchange Jan. 17.
Shareholders holding 62% of Numac have agreed to tender their shares, said Anderson, as have directors and officers of the corporation, who hold 3%.
The sale is contingent on the acquisition of at least two thirds of the shares and regulatory approval.
Numac would pay Anderson a noncompletion fee of $35 million under certain circumstances.
Numac is a western Canadian crude oil and natural gas exploration and production company with operations focused in Central Alberta, the plains area of Alberta and Saskatchewan, and northeastern British Columbia. In its third quarter of fiscal 2000, Numac reported gas sales of 109 MMcfd and liquids sales of 18,828 b/d.
Anderson said the acquisition adds to its core operating areas of northeastern British Columbia, West Central Alberta, and southeastern Saskatchewan, as well as a position in the Surmont oil sands project.
AEC purchase
AEC's purchase of Ballard will be a cash transaction and is slated to close next month.
AEC Oil & Gas (USA) Inc. valued the reserves in the Piceance basin at $274 million (Can.).
The company said the acquisition includes about 175,000 net undeveloped acres, valued at $35 million. The purchase also includes a gas gathering system at Mamm Creek worth $31 million.
AEC Pres. and CEO Gwyn Morgan said the Ballard acquisition will provide significant growth potential plus concentrated, high working-interest, long-life reserves. AEC is Canada's largest gas producer.
Last year, AEC bought Jonah field, with 1 tcf of reserves, and the Wyoming field is expected to produce 180 MMcfd of gas this year (OGJ Online, May 3, 2000). Morgan said the Mamm Creek field will add production from an adjacent Rocky Mountain basin.
AEC said more than 500 drilling locations have been identified at Mamm Creek, and it plans to drill 300 wells over the next 3 years to increase production to 65 MMcfd by 2003.