Apache Corporation (ticker: APA) announced on December 15, 2014, that it has agreed to sell its interest in two liquefied natural gas (LNG) projects to Australian E&P Woodside Petroleum Ltd. (ticker: WPL). The deal includes the accompanying upstream oil and gas reserves, along with APA’s interest in the LNG projects.
Woodside paid US$2.75 billion for a 13% interest in the Wheatstone LNG Project in Australia, along with a 65% interest in the Julimar-Brunello offshore gas development; a 65% interest in the Balnaves oil development, with immediate production; and a 50% interest in the Kitimat LNG project, including approximately 320,000 acres in the Horn River and Liard Basins, in British Columbia, Canada, according to a press release from Woodside.
According to Apache’s press release, the company will also be reimbursed for its net expenditure in the Wheatstone and Kitimat LNG projects between June 30, 2014, and closing, which is estimated to be approximately $1 billion.
Based on current estimates, Apache’s net proceeds upon closing are expected to be approximately $3.7 billion. Receipt of proceeds from this transaction will trigger an estimated $650 million cash tax liability, approximately $600 million of which is associated with the income tax due on Apache’s Overall Foreign Loss account balance. Upon incurring this income tax liability, the company estimates that it will have the flexibility to repatriate cash generated from foreign operations and/or future international strategic transactions with minimal U.S. cash tax impact.
Woodside CEO Peter Coleman said the acquisition was a natural fit with his company’s current portfolio. “We are now in position to take advantage of challenging market conditions and use cash reserves and existing debt facilities to acquire very high quality assets. We are also retaining our previous guidance on dividends and we expect our credit ratings to be unchanged. Our capital commitments on both sanctioned projects and sustaining capital are expected to be at a low level of approximately US$0.8 billion each year over the next three years.”
Upon completion of the transaction, Apache will continue to hold upstream acreage offshore Western Australia in the Carnarvon, Exmouth, and Canning basins along with related hydrocarbon reserves and production. Apache will also retain its 49% ownership interest in Yara Holdings Nitrates Pty Ltd and a 10% interest in the related ammonium nitrate plant in Australia.
The acquisition has an effective date of July 1, 2014. Financial close is targeted by end Q1’15. Apache has been trying to reduce its stake in Kitimat for the better half of this year, saying the project needed to be “right-sized.”
Apache Consolidates in North America
Apache’s LNG deal marks the second major divestiture for the company in less than a month. On November 20, the company announced the sale of non-core assets in southern Louisiana and parts of the Anadarko Basin for approximately $1.4 billion.
Apache’s decision to sell of its interest in the two LNG projects and their associated upstream projects is a continuation of the company’s policy to strengthen its onshore portfolio in North American resource locations. More than $7 billion was generated from a handful of worldwide divestures in 2013.
At the time of the November deal, G. Steven Farris, Apache’s chairman, CEO and President said, “We continue to focus on growing liquids production from our deep inventory of North American resource locations.”
APA held an enterprise value of $33.8 billion in EnerCom’s E&P Weekly report for the period ended December 12, 2014. The company was 54% liquids weighted with a trailing twelve month capital expenditure of $11.03 billion for the period ended September 30, 2014 – the second-highest of the 88 companies in the database.
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