Apache to pay $7B for BP legacy assets
With an asset purchase package from BP plc, Apache Corp. will add proved reserves of 385 MMboe and production of 83,000 boe/d. For $7 billion, Houston-based Apache plans to acquire all of BP's oil and gas operations, acreage, and infrastructure in the Permian Basin of West Texas and New Mexico and Egypt's Western Desert. The company will also acquire substantially all of BP's upstream natural gas business in western Alberta and British Columbia.
The transaction adds 2.4 million net acres to Apache's global portfolio.
"This is a rare opportunity to acquire legacy positions from a major oil company, with oil and gas production, acreage, infrastructure, seismic data, field studies, exploration prospects and other essential aspects of our business," said G. Steven Farris, Apache's chairman and CEO. "We seldom have an opportunity like this in one of our core areas let alone three."
Apache intends to finance the acquisition with a combination of debt and equity securities as well as cash on hand. The company also obtained a $5 billion bridge loan facility to backstop any financing requirements and advanced $5 billion of the purchase price to BP before the scheduled closing.
At the end of July, the company completed its sale of common stock and depositary shares with net proceeds totaling approximately $3.48 billion after underwriting discounts and before expenses.
The underwriters option increased the size of the common stock offering from 23 million shares to 26.45 million shares. The common stock offering was priced at $88 per share. Net proceeds, before expenses, from the common stock offering were approximately $2.26 billion.
Permian Basin acquisition
Ten field areas in the Permian Basin with estimated proved reserves of 141 million boe (65% liquids), first-half 2010 net production of 15,110 barrels of liquids and 81 MMcf of gas per day, and two operated gas processing plants were aquired.
Apache produced 42,287 barrels of liquids and 86 MMcf of gas per day (net) in the Permian Basin during the second quarter of 2010.
Canada acquisition
The 1.3 million net acres being acquired in western Canada hold estimated proved reserves of 224 million boe (94% gas) and first-half 2010 net production of 6,529 barrels of liquids and 240 MMcf of gas per day, including positions in emerging unconventional plays such as the Montney, Cadomin, Doig, as well as colbed methane positions.
In the second quarter, Apache's Canadian operations produced 340 MMcf of gas and 16,557 barrels of liquids per day.
Egypt acquisition
Apache is acquiring four development leases and one exploration concession across 394,300 acres in Egypt's Western Desert. The assets have estimated proved reserves of 20 million boe (59% liquids), and first-half 2010 net production of 6,016 barrels of oil and 11 MMcf of gas per day.
Apache's second-quarter net production in Egypt averaged 98,495 barrels of oil per day - up 8.5% from the first quarter - and 388 MMcf of gas per day, up 7%.
Apache's financial advisors for these transactions were Goldman, Sachs & Co., BofA Merrill Lynch, Citi, and J.P. Morgan. Bracewell & Giuliani is representing Apache in the acquisition and public offering.
Ratings
Moody's and Fitch currently rate Apache as A3 and A-minus, respectively. Moody's said any downgrade would be limited to one notch, and Fitch said it will likely cut the company one step to BBB-plus if the acquisition is completed under the terms currently expected.
While Apache will fund the acquisition using cash and equity, the purchase will nonetheless increase the company's leverage because of the high price paid relative to its low proportion of production and producing reserves and the need to fund development of some reserves, Moody's said in a statement.
Apache has other pending acquisitions, which may increase its leverage, Moody's said. Fitch noted the company will have completed $12 billion in acquisitions this year, including the BP deal, "a number which swamps Apache's historical acquisition activity."
Fitch expects Apache's debt to increase to about $10 billion, compared with approximately $5 billion at March 31, before the company undertook its acquisition activity.
Oil majors plan new oil spill containment system to protect Gulf of Mexico
A plan to build and deploy a rapid response system that will be available to capture and contain oil in the event of a potential future underwater well blowout in the deepwater Gulf of Mexico is underway and being led by ExxonMobil, Chevron, ConocoPhillips, and Shell. The four companies will form a non-profit organization, the Marine Well Containment Company, to operate and maintain the system.
The new system will be flexible, adaptable, and able to begin mobilization within 24 hours and can be used on a wide range of well designs and equipment, oil and natural gas flow rates, and weather conditions. The new system will be engineered to be used in deepwater depths up to 10,000 feet and have initial capacity to contain 100,000 barrels per day with potential for expansion.
The companies have committed $1 billion to fund the initial costs of the system. This system offers key advantages to the current response equipment in that it will be pre-engineered, constructed, tested and ready for rapid deployment in the deepwater Gulf of Mexico.
The system will include specially designed subsea containment equipment connected by manifolds, jumpers, and risers to capture vessels that will store and offload the oil. Dedicated crews will ensure regular maintenance, inspection, and readiness of the facilities and subsea equipment.
Wood Mackenzie assesses future global upstream value at $2.6 trillion, whilst industry is shifting towards 'volume plays'
Wood Mackenzie's Upstream report entitled 'Maintaining the pursuit of upstream value' estimates the remaining worth of international oil company (IOC) upstream portfolios at just over US$2.6 trillion, shared between over 650 companies and 80 countries. In pursuit of further growth, there has been a clear shift towards 'volume plays'- characterized by huge reserves and comparatively low contractor margins.
Head of Middle East and Asia-Pacific Upstream Research, Iain Brown says, "There is huge remaining growth potential and volume plays are becoming increasingly important to IOC's value propositions. Companies are facing the prospect of lower margins, as they seek to produce oil and gas from more difficult and less accessible reservoirs. This may be oil sands or tight gas in North America, low margin oil in Iraq or Abu Dhabi, or sour gas in remote parts of the Far East."
The report attributes one-third of total value to the five largest international companies - Shell, ExxonMobil, Chevron, BP, and Total. Shell and ExxonMobil have the most valuable portfolios, estimated at around US$220 billion, although the top five IOCs still lag behind the world's major national oil companies (NOCs), such as Saudi Aramco, PetroChina, and Gazprom.
Brown says, "Some NOCs have broadened their horizons in the last 20 years, successfully competing with their international counterparts. They are now regular, front-line competitors in the world's major oil and gas provinces, adding to the access challenge for valuable new projects and acquisitions."
Future expectations of value are dominated by three historical heartlands of oil and gas production — the US, Canada, and Russia. The prominence of these countries is the result of three key factors: the scale of resource, political stability and, at least in regard to the US and Canada, fiscal terms which promote development of new production capacity.
There is a clear relationship between the scale of a country's remaining oil and gas reserves, and the upstream value proposition for IOCs. The Netherlands and the UK are advancing towards resource depletion, but deliver higher values to investors (over US$12 per barrel of oil equivalent). By contrast, Russia and Libya, with tens of billions of barrels nominally accessible to IOCs, offer less than US$3.50 per barrel.
Brown explains, "Cutting-edge technologies are needed to extract the difficult oil and gas towards the latter stages of field life, or from more challenging reservoirs. Countries in these circumstances tend to offer more attractive terms to attract essential skills and investment to extend production life."
Marathon marks first oil from deepwater Gulf of Mexico Droshky development
In the deepwater Gulf of Mexico, the Droshky development has started production for Marathon Oil Corp. Production, which is expected to reach 50,000 net barrels of oil equivalent per day at its peak (45,000 b/d of liquid hydrocarbons and 30 million cubic feet per day of natural gas), has started on time and—with a development cost of less than $900 million—under its projected $1.3 billion budget.
Marathon owns a 100% working interest in the development, which is located in roughly 3,000 feet of water in Green Canyon Block 244, about 160 miles southwest of New Orleans. The project consists of four development wells tied back to the third-party Bullwinkle platform with dual, 18-mile flowlines.
The initial stage of development is expected to produce 35 million of the estimated 60 million barrels of oil equivalent (boe) net resource. At year-end 2009, Droshky had booked proved reserves of approximately 26 million boe.
In morning trading after the announcement, shares of Marathon were up 13 cents to $31.84.
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