Apache Corp. (APA) agreed to buy oil and natural gas assets in the North Sea from Exxon Mobil Corp. (XOM), including the Beryl field, for $1.75 billion as it seeks to boost production in one of its most successful regions.
The fields produce 19,000 barrels of oil and 58 million cubic feet of natural gas a day, Houston-based Apache said in a statement today. Estimated proved reserves were the equivalent of 68 million barrels of oil at the end of last year. Apache said it plans to fund the transaction with cash.
The purchase adds to the $11 billion Apache spent last year on acquisitions that included BP Plc fields in Texas and Egypt and a gas business in Canada. The company has almost doubled production at the Forties Field, the U.K’s largest, since buying it in 2003. The latest move is expected to increase Apache’s North Sea output by 54 percent and proved reserves by 44 percent.
“They’re clearly going to attempt to replicate similar success they had at Forties,” said Leo Mariani, an analyst at RBC Capital Markets in Austin, Texas. “There’s a pretty good chance that they make some nice money on it over time,” Mariani, who has a “sector perform” on Apache shares and owns none, said today in a telephone interview.
The Exxon assets Apache is purchasing include the Nevis, Ness, Nevis South, Skene and Buckland fields, a stake in the Beryl/Brae gas pipeline and the SAGE gas plant, and non-operated interests in the Maclure, Scott and Telford fields. Apache also receives exploration acreage in Benbecula, west of Scotland’s Shetland Islands.
Apache’s payment to Exxon will be reduced by cash flow generated by the business from the effective date of Jan. 1, 2011, to the closing expected by the end of the year, Chairman and Chief Executive Officer Steven Farris said on a conference call with analysts and investors. The company’s cash outlay at the closing may be $1.5 billion to $1.55 billion before a tax benefit, he said.
Apache said 40 percent of the $1.75 billion price may be deductible against future income. Farris said the transaction is expected to add to earnings, cash flow and production.
Today’s agreement has a price of $25.74 per barrel of oil equivalent of proved reserves, according to a note to clients from Sterne Agee analysts led by Michael McAllister. That’s more than four times the price per unit in Apache’s 2003 deal with BP, though comparisons are misleading because of the increase in Brent crude prices since then, said Sterne Agee, which has a “buy” rating on Apache.
“There is a portfolio of low-risk exploitation projects, and we believe the complex structural setting holds reserve upside,” Farris said in the statement. “Apache has demonstrated the ability to increase the efficiency of mature North Sea assets, find new reserves to extend field life, and operate in a safe and environmentally responsible manner.”
BP, Total SA and ConocoPhillips (COP) are also trying to sell mature assets in the North Sea. Deals have been hampered by the cost of dismantling decades-old platforms. U.K. law holds sellers responsible for decommissioning if the buyer can’t pay, leading sellers to demand letters of credit for the potential costs and adding to the expense of deals.
Apache can add value to the fields by pushing back decommissioning and extending their life, spokesman Bill Mintz said by phone from Houston.
An increased tax on production imposed in the last U.K. budget has also scuppered transactions, according to industry group Oil & Gas U.K.
Anadarko Petroleum Corp. and Apache Corp. are vying to be the largest U.S. independent oil and gas producers by market value, based on fluctuations in their share prices.
Apache fell $3.17 cents, or 3.4%, to $91.35 at 4 p.m. in New York Stock Exchange composite trading.