2010-07-26-2010-07-20

To acquire 405,000 net acres in TX, NM Permian Basin, gaining 141 MMBOE proved, 15,110 BOL/d, 81 MMcfg/d, plus 2 operated gas-processing plants; to acquire 1.3 million net acres in Alberta, British Columbia Montney, Cadomin, Doig plays & Mist Mountain CBM project, gaining 224 MMBOE proved, 6,529 BOL/d, 240 MMcfg/d; to acquire 4 development leases & East Badr El-din exploration concession across 394,300 acres in Western Desert, gaining 20 MMBOE proved, 6,016 BO/d, 11 MMcfg/d, plus infrastructure and gas-processing plant.

Confirming rumors of deal talks with embattled British producer BP Plc, Houston-based Apache Corp. (NYSE: APA) plans to acquire all of BP's oil and gas operations, acreage and infrastructure in the Permian Basin of West Texas and New Mexico, in Egypt's Western Desert, and substantially all of BP's upstream natural gas business in western Alberta and British Columbia for US$7 billion.

"This is a rare opportunity to acquire legacy positions from a major oil company, with oil and gas production, acreage, infrastructure, seismic data, field studies, exploration prospects and other essential aspects of our business," says Apache chairman and chief executive Steven Farris. "We seldom have an opportunity like this in one of our core areas let alone three. We're tremendously excited about it."

The announcement is in line with BP's plans to divest $10 billion in assets this year to provide the company financial flexibility related to expenses incurred surrounding the Gulf of Mexico oil leak from the Macondo well.

BP group chief executive Tony Hayward says, "We have achieved an excellent price for a set of properties that are worth more to others than to BP. This is a good first step which underlines our ability and determination to get maximum value for everything we sell."

Apache has allocated $3.1 billion to the Permian Basin properties, $3.25 billion to the Canadian properties, and $650 million to the Egyptian properties. The three separate deals represent a complete exit from each region by BP, with the exception of its oil-sands and natural gas liquids operations in Canada.

Estimated proved reserves for the total is some 385 million barrels of oil equivalent. Net production from the properties in first-half 2010 was 28,000 barrels of liquid hydrocarbons and 331 million cubic feet of gas per day, or a total of approximately 83,000 barrels of oil equivalent per day. The transaction will add 2.4 million net acres to Apache's global portfolio.

Apache will advance $5 billion of the purchase price to BP on July 30 ahead of the anticipated closing and to be applied to the purchase price. Apache intends to finance the acquisition with debt and equity securities as well as cash on hand. The company has also obtained a $5-billion bridge loan facility to backstop any financing requirements.

Farris adds, "This is a step change that will add muscle, enabling Apache to add value for decades to come through our demonstrated exploitation capabilities and exploration drilling."

In the Permian, Apache is acquiring 10 field areas with estimated proved reserves of 141 million BOE (65% liquids). First-half 2010 net production was 15,110 barrels of liquids and 81 MMcf of gas per day, and two operated gas-processing plants. The fields are: Block 31, Empire/Yeso, SELea, Brown Bassett, Block16/Coy Waha, Spraberry, Wilshire, North Misc, Pegasus, Delaware Penn.

Farris described the assets as under-exploited with 1.7 million gross acres, including 405,000 net mineral and fee acres, in prospective areas of the basin with substantial opportunities for new drilling.

Apache produced 42,287 barrels of liquids and 86 MMcf of gas per day net in the Permian Basin during second-quarter 2010. At year-end 2009, Apache had proved reserves of 469 million BOE and 961,000 gross acres in the Permian.

Apache is also acquiring 1.3 million net acres in western Canada with estimated proved reserves of 224 million BOE (94% gas) and first-half 2010 net production of 6,529 barrels of liquids and 240 MMcf of gas per day. The acquisition involves significant positions in several emerging unconventional plays including the Montney, Cadomin, Doig and the Mist Mountain coal-bed methane project.

In the second quarter, Apache's Canadian operations produced 340 MMcf of gas and 16,557 barrels of liquids per day. At year-end 2009, Apache had 531 million BOE of proved reserves and 5.6 million gross acres in Canada.

In Egypt, Apache is acquiring four development leases and the East Badr El-din exploration concession across 394,300 acres in the Western Desert. The assets have estimated proved reserves of 20 million BOE (59% liquids). First-half 2010 net production was 6,016 barrels of oil and 11 MMcf of gas per day.

The acquisition additionally includes strategically positioned infrastructure including a gas-processing plant, a liquefied petroleum gas plant and oil and gas export lines. "These facilities will enable Apache to increase production from our existing fields in the Western Desert," says Farris.

Apache's second-quarter net production in Egypt averaged 98,495 barrels of oil per day and 388 MMcf of gas per day. At year-end 2009, Apache had estimated proved reserves of 309 million BOE and 11.1 million gross acres in Egypt.

Farris adds, "This transaction provides a sustainable growth platform for Apache's onshore North America operations that complements our recent transaction with Devon Energy Corp. in the Gulf of Mexico and our pending merger with Mariner Energy Inc., as well as strategic infrastructure and exploration potential in Egypt."

BP chairman Carl-Henric Svanberg says, "Over the last two months the board has considered BP's options for generating the cash necessary to meet the obligations likely to arise from the Gulf of Mexico oil spill...The board believes that there are opportunities to divest assets which are strategically more valuable to other parties than they are to BP."

The effective date of the transaction is July 1, 2010. Closing for each of the three transactions are expected in the third quarter.

Additionally, Apache initiated a registered underwritten public offering of 21 million shares of its common stock and a separate registered underwritten public offering of $1.1 billion of mandatory convertible preferred stock.

Goldman, Sachs & Co., Bank of America Merrill Lynch, Citi and J.P. Morgan are financial advisors to Apache. Standard Chartered is advisor to BP.

Pritchard Capital Partners analyst Ray Deacon estimates Apache is paying $18 per proved barrel of oil equivalent, and $84,000 per flowing BOE for the overall transaction. Analysts at Tudor, Pickering, Holt & Co. Securities Inc. value the Permian portion of the deal at $17 per proved BOE and $86,000 per flowing BOE after backing out an estimated $650 million for midstream assets.