Apache acquires Repsol's Egypt interests for $410 million
Apache Corp., Houston, bought essentially all of Repsol-YPF SA�s exploration and production properties in Egypt�s western desert for $410 million. Apache also plans to spend $350 million over the next 3 years to boost production from the Khalda/Khalda Offset concessions.
Apache Corp. in Houston said Tuesday it bought essentially all of Repsol-YPF SA�s exploration and production properties in Egypt�s western desert for $410 million.
�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/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.
With its acquisition of Repsol�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'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 operates five, Apache operates one, and the remaining concession is operated by a Royal Dutch-Shell Group unit.
In the combined Khalda/Khalda Offset concession, Apache had a 40% contractor interest to Repsol�s 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 to 100 m in depth. Apache's interest in the deepwater portion will remain at 67%, with Repsol 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% previously, 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 Repsol properties for some time. �Their move into South America with the purchase of YPF 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 of 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.
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 have 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 they 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 Mid-Continent 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 line between them to increase deliverability. Improving the plant efficiencies should cost about $125 million, said Farris.