Apache Corporation (ticker: APA) is an oil and gas exploration and production company with operations in the United States, Canada, Egypt, the United Kingdom, Australia and Argentina. It is one of the world’s top independent E&P companies and recently celebrated its 50th anniversary.
Apache Corporation announced on August 30, 2013, the sale of 33% of its Egypt assets for $3.1 billion to Sinopec International Petroleum Exploration and Production Corporation, a wholly owned subsidiary of Sinopec Group (ticker: SNP). APA will continue its Egyptian operations and pursue joint upstream oil and gas projects through its partnership with Sinopec International. Click here for the full news release.
The deal with Sinopec International values APA’s total Egypt assets at approximately $9.4 bilion before adjustments. APA’s market capitalization on August 23, 2013, was $31.1 billion. The partnership is subject to customary governmental approvals and is expected to close during the fourth quarter, with an effective date of January 1, 2013.
Egypt Operational Details
Net production from APA’s Egypt operations averaged 100,000 barrels of oil and 354 million cubic feet (MMcf) of natural gas per day in 2012. Gross production during the period averaged 213,000 barrels of oil and 900 MMcf of gas per day. APA’s exploration and production operations, which are located in remote, unpopulated areas, remain unaffected by political events in the region. Sinopec International estimated remaining reserves at 641 million barrels of oil and 3.79 trillion cubic feet of natural gas.
APA joins an increasingly large list of United States-based companies selling their overseas assets. Companies such as ConocoPhillips (ticker: COP), Hess Corporation (ticker: HES), Marathon Oil (ticker: MRO) and Anadarko Petroleum (ticker: APC) have all sold properties in Africa and Asia since 2012.
Large Sales in Asia and Africa (Since 2012)
|Anadarko Petroleum||ONGC Videsh Ltd.||Mozambique||$2,640|
|ConocoPhillips||Trinidad and Tobago Holdings||Trinidad and Tobago||$600|
|Hess Corporation||ONGC Videsh Ltd.||Azerbaijan||$1,000|
|Marathon Oil||SSI Thirty-One Limited||Angola||$1,500|
Other Sinopec Deals
Sinopec International and Chesapeake Energy (ticker: CHK) closed a joint venture focused on a portion of CHK’s Mississippi Lime play. CHK sold an undivided 50% interest in approximately 850,000 acres in northern Oklahoma for total consideration of $1.02 billion in cash. Net to Sinopec’s interest, assets associated with the joint venture produced approximately 9,600 barrels of liquids and 54 million cubic feet of natural gas per day during Q1’13. All future exploration and development costs in the joint venture will be shared proportionately between the parties with no drilling carries involved. As the operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the joint venture. On a metric basis, the JV between the companies was priced at $1,200 per acre, or $54,839 per flowing BOE per day.
APA’s Portfolio Adjustments
The deal in Egypt comes on the heels of a recent sale of APA’s Gulf of Mexico assets. On July 18, 2013, Fieldwood Energy LLC, an affiliate of Riverstone Holdings paid $3.75 billion to APA to assume all asset retirement obligations for the properties. Apache retained 50% of its ownership interest in all exploration blocks and in horizons below production intervals in the developed blocks. High-potential deep hydrocarbon plays in the area are currently being tested by APA.
Pro forma for the partnership with Sinopec International and the sale of Gulf of Mexico shelf assets, Apache’s Q2’13 production from North American onshore assets and from Egypt would have comprised approximately 55% and 15%, respectively. In 2010, onshore North America contributed 31% of Apache’s overall production, Egypt represented 25% and the Gulf of Mexico shelf represented 17 %.
APA’s Q1’13 results prompted the company to rebalance its portfolio toward assets with predictable growth rates and attractive rates of return, while ridding itself of properties not ideal for its long term plan. APA has now generated $7 billion from selling assets, well above its $4 billion goal. The revenue intends to pay down debt in order to maintain APA’s current credit ratings and buy back shares under a 30-million share repurchase authorization, as well as fund future capital expenditures including international projects.
“We are pleased to launch a global partnership with Sinopec, and to welcome them into our business in Egypt,” said G. Steven Farris, chairman and chief executive officer of Apache Corp. “Their technical expertise complements our 20 years of experience operating in Egypt and creates an alliance that will continue to explore and deliver the tremendous hydrocarbon resources in the Western Desert. Sinopec is an ideal partner for us, and we look forward to the growth and value generation ahead for both companies through the expansion of our collaboration to other projects.
“Our successful exploration and development programs in Egypt have been an important contributor to both growth and cash flow for many years. With today’s partnership, we are ensuring they can continue this contribution in the future. At the same time, we are taking meaningful steps to rebalance our portfolio to better deliver the full potential of our deep North America onshore resource inventory.”
Thomas Driscoll, managing director at Barclays Capital, said in his note on August 30, 2013: “These two major asset sales address two assets that have caused investor concern and contributed to Apaches discount multiple. While the knock on Egypt was the political risks, the concerns with the Gulf assets were the unexciting drilling opportunities, high costs structures, steep production decline rates and a degree of unpredictability that often disappointed investors.”
APA’s increased focus on local opportunities will have a positive impact, Driscoll claims. The income from asset sales will allow APA to “accelerate drilling in areas of the Permian Basin – such as the Wolfcamp and Bone Spring formations – that have generated substantial interest by other companies.”
William Featherston, managing director at UBS Investment Research, said in his August 30, 2013 note: “While reducing its stake by one third in Egypt at a solid price is attractive, bringing in a strong Chinese partner should also add political cover. Reducing net production by ~50 MBoed from an asset generating little growth should also modestly improve APA’s growth profile as it emerges from its restructuring.”
John Freeman, energy analyst for Raymond James & Associates, reiterated an “outperform” rating on APA. He believes the company isn’t finished with divesting or partially monetizing its assets. Properties in the Deepwater Gulf of Mexico ($3 billion), Argentina ($1 billion), and a fertilizer plant in Australia ($439 million) are listed as possible expendable assets.
“Why stop now?” Freeman asks. “We believe Apache has surpassed its own expectations with the two announced sales but that doesn’t mean the concurrent processes need to be canceled. In fact with less urgency to sell anything, the company has more of an edge at the negotiating table.”
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