Apache Corp. (NYSE: APA) plans to acquire western Canadian properties with proved reserves of 72 million BOE (approximately 59% gas) from Canadian affiliates of Phillips Petroleum Co. (NYSE: P) for US$490 million. Phillips had acquired the assets from the former Pennzoil Co. and Gulf Canada Resources Ltd. (NYSE: GOU) in 1997 for US$320 million, and recently purchased additional infrastructure in the area, adding to the properties' value. "This sale is part of Phillips' ongoing effort to rationalize our E&P portfolio, focusing on legacy assets and divesting properties that are not core to our business," says Bill Parker, Phillips executive vice president, production and operations. Phillips will retain a presence in Canada through various nonoperating interests in Alberta and British Columbia. The assets, which include producing and undeveloped acreage, extensive infrastructure and seismic data, are in the Zama area of northwestern Alberta. Apache will fund the acquisition with cash on hand and commercial paper, bringing its debt-to-capitalization ratio to 38% upon closing. Upon closing this deal as well as one with New Zealand-based Fletcher Challenge Energy for its Canadian assets, Apache will have acquired approximately 338 million BOE of reserves at an average price of $5.66 per BOE, since 1997, according to Apache president G. Steven Farris. "Based on current production and forward prices, the two Canadian transactions bring us the equivalent of two years of production at a cost of only six months of cash flow." The properties comprise approximately 212,000 net developed acres and 275,000 net undeveloped acres. Current daily production is approximately 70 million cu. ft. of gas and 6,000 barrels of liquid hydrocarbons. The average working interest is 88%, and Apache will operate approximately 90% of the production. Moody's Investors Service confirmed Apache's debt ratings after the announcement, and issued its outlook as stable. "At $6.84 per BOE, the cost of the properties appears to be rather high," the firm's analysts report. "However, the acquisition also includes $97 million of fixed assets and $46 million of acreage and seismic. If the cost of these assets is excluded, the purchase price for the properties is approximately $4.85 per BOE, which Moody's believes is reasonable."

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