Apache Corp. (APA) agreed to buy closely held Cordillera Energy Partners III LLC for $2.85 billion in cash and stock, adding to Oklahoma and Texas operations that use hydraulic fracturing to get oil and natural gas.
The acquisition will more than double Apache’s holdings in the Anadarko basin and add estimated proved reserves of 71.5 million barrels of oil equivalent, the Houston-based company said in a statement today. The purchase will be paid for with $2.25 billion in cash and $600 million of stock and includes 18,000 barrels a day of existing production.
The transaction is “fair at best” given that about half of the output from the acreage is gas, Leo Mariani, an Austin, Texas-based analyst at RBC Capital Markets, said in a telephone interview. “The ultimate price is $6,000 an acre and gas prices need to go up in the next few years for them to make money on this.”
Gas prices have dropped to 10-year lows as the increased use of horizontal drilling and hydraulic fracturing, or fracking, has boosted U.S. production. Fields that also produce crude and natural gas liquids, including propane, are more valuable since those fuels are tied to oil prices, which rose 8.2 percent in New York last year.
Apache, which has been drilling in the Anadarko basin for more than 50 years, will have expanded ability to produce oil and liquids from horizontal drilling by adding Cordillera’s acreage. The company, which had no horizontal wells in the area before 2009, now gets more than half of its daily output in that region from the drilling method used with fracking, the injection of water, sand and chemicals to release oil and gas.
Cordillera, whose principal shareholder is EnCap Investments LP, holds 254,000 net acres in the Granite Wash, Tonkawa, Cleveland and Marmaton areas of western Oklahoma and Texas. The Denver-based company’s output is 47 percent gas, 30 percent oil and 23 percent gas liquids, according to an Apache slide presentation. Cordillera got about 80 percent of its revenue from selling its oil and liquids.
“It obviously expands their footprint in the Granite Wash, which is a hot play,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who has an “outperform” rating on Apache shares and owns none.
The value of the acquisition will be the liquids production, given that oil futures are trading close to $100 a barrel, Gheit said in a telephone interview. Apache has a good track record of purchases, he said.
Biggest Since BP
The transaction, expected to close by April 30, will add to earnings and cash flow this year, while the development drilling program will be self-funding beginning in 2013, Apache said. The purchase is Apache’s largest since buying assets from BP Plc in 2010.
Apache rose 1.6 percent to $98.38 at the close in New York. The shares, which declined 24 percent last year, have gained 8.6 percent in 2012.
Apache, which has a market value of about $37.8 billion, produced 752,000 barrels of oil equivalent a day in the quarter ending in September. It will borrow to finance the cash portion of the acquisition.
Cordillera III was formed in March 2007 by George Solich. Previous iterations of the company have sold assets to Patina Oil and Gas Corp., Forest Oil Corp., Merit Energy and Devon Energy Corp., according to its website.
Apache was advised on the deal by Goldman Sachs Group Inc. and Tudor Pickering Holt & Co. Jefferies & Co. and JPMorgan Chase & Co. were Cordillera’s financial advisers and Andrews Kurth LLP and Thompson & Knight LLP were its legal advisers.
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