HOUSTON (The Deal) -- Keeping its promise to expand further in the deepwater Gulf of Mexico, Freeport-McMoRan Copper & Gold (FCX) said Thursday its oil and gas unit agreed to pick up non-operated interests in the Lucius and Heidelberg oil production development projects and 11 exploration leases in the area from Apache (APA) of Houston for $1.4 billion.
The Phoenix-based resources company will fund the acquisition with proceeds from the sale of its Eagle Ford Shale properties in South Texas to Canada's Encana (ECA) for $3.1 billion, which it announced Wednesday.
Both deals are expected to close this quarter and Freeport-McMoRan plans to use the estimated $1.3 billion in after-tax net proceeds to pay down debt.
Freeport-McMoRan management, including Jim Bob Moffett, Richard Adkerson and Jim Flores, said in a statement that the Eagle Ford sale gives it funding to repay debt and acquire high-quality assets in its deepwater Gulf of Mexico focus area."These transactions are value-accretive and the additional interests will enhance our portfolio of assets, which are characterized by strong margins, attractive growth potential and compelling investment returns," they said. "We remain focused on opportunities to advance our debt reduction objectives while strengthening our portfolio of assets with strong margins and impactful long-term growth opportunities." Thomas Voytovich, Apache's chief operating officer for offshore and international operations, said in a separate statement that the company is focusing on subsalt and other deeper exploration opportunities in water depths less than 1,000 feet, which have been relatively untested by industry. "Discoveries on the shelf have quicker cycle times, require less capital and provide more options to bring oil and gas to market," he said. Voytovich said Apache has working interests in 650 blocks in the Gulf of Mexico and continues to pursue joint ventures and monetization opportunities for its deepwater prospects along with the exploration and development of properties in shallower water. Apache said its Gulf of Mexico deepwater region contributed 9,167 barrels of oil equivalent per day to its production in the fourth quarter and that none of the company's producing operations are involved in the sale. The assets being acquired include 11.7% of the Lucius and 12.5% of the Heidelberg projects, which together have estimated proved, probable and possible reserves of 55 million barrels of oil equivalents and several hundred million barrels of oil equivalents resource potential, Freeport-McMoran said. The Lucius unit includes Keathley Canyon Blocks 874, 875, 918 and 919 and the Heidelberg unit includes Green Canyon Blocks 859, 903, 904 and 948. Freeport-McMoRan will end up with a 35% working interest in the Lucius development, which is on track to begin production in the second half of this year. The Heidelberg, which is a large oil development project in 5,000 feet of water in the Green Canyon area, is operated by Anadarko Petroleum (APC) and is expected to begin production in mid-2016. Freeport-McMoRan said the hull fabrication for the 80,000-barrels of oil per day Lucius-look-alike facility is 85% complete, the spar is expected to be towed to the Gulf of Mexico later this year and topsides fabrication is 25% complete. The 11 exploration leases include Apache's interests in the Lucius Offset, Capri and Silver Fox/Parmer exploration areas with working interests ranging from 16.67% to 60%. The transaction must clear preferential rights but is expected to close by June 30. Apache has sold other properties as part of a process that began last year to rebalance the company toward more liquids production and use the proceeds to buy back shares. Last month it shed its producing oil and gas properties in the Deep Basin area of Canada's western Alberta and British Columbia to Canadian Natural Resources Ltd. for $374 million. And in February it jettisoned its operations in Argentina to YPF (YPF) for $852 million. It also has on the block its 50% of the Kitimat liquefied natural gas export project in Western Canada. Chevron Corp. bought half of the project in 2012 from Encana and EOG Resources Inc. for an estimated $1.1 billion. Barclays' Greg Pipkin and Brad Hutchinson advised Freeport-McMoRan. Jefferies & Co.'s Ralph Eads and Goldman Sachs & Co.'s Suhail Sikhtian assisted Apache. Latham & Watkins LLP's Jeff Munoz, Stephen Szalkowski and Chris Bennett counseled Freeport-McMoRan while Bracewell & Giuliani LLP's Alan Rafte represented Apache.
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