Apache Corporation (NYSE:APA) announced last week that it has plans to exit the Gulf of Mexico by selling its Shelf operations and assets to Fieldwood Energy LLC for a cash transaction of $3.75 billion.
Fieldwood Energy is a portfolio company of Riverstone Holdings Limited (SGX:AP4), with a focus on acquisition of out-of-favor or underworked assets and under-capitalized companies that can be profitably developed with exploitation of Fieldwood’s expertise. Riverstone and Fieldwood have previously partnered successfully to build Dynamic Offshore Resources into one of the largest operators on the Gulf of Mexico Shelf.
Apache Corporation shelf portfolio
Apache Corporation (NYSE:APA)’s Shelf portfolio is composed of more than 500 oil & gas blocks spread over an area of 1.9 million acres. This region has proven oil reserves of 133 million barrels (mmbbl) and gas reserves of 636 billion cubic feet (bcf). These reserves can be valued at current prices at about USD 15.5 billion.
Apache Corporation (NYSE:APA) believes that selling off these operations will allow the company to achieve more predictable growth. “This transaction is an important step toward rebalancing our portfolio. At the end of this process, we expect Apache to have the right mix of assets to generate strong returns, drive more predictable production growth, and create shareholder value,” said G. Steven Farris, Chairman and CEO of Apache Corporation.
“Apache has had a great run on the Gulf of Mexico Shelf over the last 30 years, and the Shelf region and staff have played a vital role in making Apache the company it is today. As our company has evolved, however, so have our investment priorities,” Farris said. “Since 2010 we have increased our focus in North America on capturing and developing a deep inventory of onshore assets, where we have been generating exceptional production growth at attractive rates of return. The shallower horizons in the Shelf have matured to the point that dependable production growth is more difficult to achieve than from our onshore liquids plays. We remain excited about the potential associated with the emerging plays under existing salt domes, which is why we retained 50 percent of the deep rights on 406 blocks held by production and 50 percent of all rights in 146 primary term blocks.”
Apache’s acquire-and-exploit strategy
“For much of its three decades on US Gulf Shelf, Apache Corporation (NYSE:APA) was known for its acquire-and-exploit strategy, especially from the late 1990s until about the mid-2000s when it closed some of its largest transactions. The company bought properties that were no longer core to larger operators and wrung from them the maximum production possible,” says Platts.
The irony of this transaction is that Apache Corporation (NYSE:APA) bought these assets years ago from sellers whose CEOs at that time are now heads of Fieldwood Energy. John Browne, ex-CEO of BP plc (NYSE:BP) (LON:BP) and James Hackett, ex-CEO of Anadarko Petroleum Corporation (NYSE:APC) were both heads of companies that sold the Gulf of Mexico assets to Apache. These two powerful individuals are both now partners in Riverstone LLC.
Apache Corporation (NYSE:APA) has operations in the U.S., Canada, Egypt, U.K., Australia and Argentina. Apache also has the third largest holding in terms of total acreage in the shale basins of North America. Apache’s assets, before the sale of the Gulf of Mexico Shelf, had an average reserve life of approximately ten years at the end of 2012.
Figure 1: Apache Corporation Price and EPS (USD)
This transaction does not steer Apache completely away from the Gulf area. The company will retain 50 per cent of its ownership interest in all the exploration blocks and in horizons below production in wells with current production. Apache Corporation (NYSE:APA) also has deepwater U.S. Gulf operations that include stakes in the high-profile Anadarko-operated ultra-deepwater Lucius and Heidelberg discoveries.