The Deal: Apache Sells Gulf of Mexico Assets to Fieldwood for $3.8B

NEW YORK ( The Deal) -- Fieldwood Energy LLC ( JCI), which is backed by private equity firm Riverstone Holdings LLC, said after the markets closed Thursday, July 18, that it bought Gulf of Mexico shelf properties from Houston oil and gas explorer Apache Corp. ( APA) for $3.75 billion.

In a separate statement, Apache said Fieldwood also would assume all asset retirement obligations for the properties, which Apache estimated at a discounted value of $1.5 billion as of June 30. Apache said it's keeping half of its interests in all exploration blocks and in horizons below production in developed blocks, where it said high-potential deep hydrocarbon plays are being tested.

The price is about what Simmons & Co. International thought the properties would fetch in May. Others thought to be bidding included companies such as W&T Offshore Inc. ( WTI) and Stone Energy Corp. ( SGY) and other private equity firms including TPG Capital, Kohlberg Kravis Roberts & Co. LP and Apollo Global Management LLC.

Apache announced in February that it would look to sell $2 billion in unidentified assets to pay down debt, a target it boosted to $4 billion in May so it could repurchase shares (a program it has targeted at 30 million). Many analysts thought that selling the assets was a way for Apache to stave off activist investors given its underperformance compared with its peers.

Apache is still thought to have on the block its deepwater Gulf of Mexico properties, which analysts think could fetch $2 billion, and an Australian fertilizer plant, which could bring in another $500 million. "In the near term, we believe the shares should be supported by divestiture announcements and share buybacks," Simmons wrote in a report June 21.

Apache expects to close the deal Sept. 30 and will operate the properties during a transitional period.

Fieldwood claims the properties represent the largest operated asset base on the Gulf of Mexico shelf, including 500 blocks over 1.9 million net acres. Fieldwood hopes to keep almost all of Apache's Gulf of Mexico shelf employees.

Fieldwood said the properties had proved reserves of 239 million barrels of oil equivalent at the end of last year, 55% of which is oil and 75% of which is developed. They produced 95,000 barrels of oil equivalent per day, 90% of which Apache operates.

Apache said the assets had estimated proved reserves at the end of last year of 133 million barrels of oil and natural gas liquids and 636 billion cubic feet of natural gas. It said on average the fields produced 50,000 barrels of liquid hydrocarbons and 254 million cubic feet of natural gas per day in the first quarter.

Fieldwood said it and Apache would jointly participate in deep exploration opportunities on the acquired assets targeting what it called a "robust inventory of high potential prospects," including subsalt horizons around known producing fields.

Apache chairman and CEO G. Steven Farris said in a statement that the transaction is an important step toward rebalancing its portfolio. "At the end of this process, we expect Apache to have the right mix of assets to generate strong returns, drive more predictable production growth and create shareholder value," he said.

Farris said Apache has had "a great run" on the Gulf of Mexico shelf over the last 30 years but its investment priorities have evolved. "Since 2010 we have increased our focus in North America on capturing and developing a deep inventory of onshore assets, where we have been generating exceptional production growth at attractive rates of return," he said. "The shallower horizons in the shelf have matured to the point that dependable production growth is more difficult to achieve than from our onshore liquids plays."

Farris said the company remains excited about the potential associated with the emerging plays under salt domes, which is why it kept 50% of the deep rights on 406 blocks held by production and 50% of all rights in 146 primary term blocks.

Matt McCarroll, president and CEO of Fieldwood, called Apache the "preeminent operator on the Gulf of Mexico shelf" and said Apache's team will help lead its efforts toward continued successful development of asset base as well as pursuing an active exploration program on the inventory of identified high-impact prospects.

Riverstone co-founders Pierre Lapeyre and David Leuschen said the Gulf of Mexico has been a core area of focus of the firm's since its early funds and called the Apache acquisition a "rare and exciting new opportunity."

Riverstone partner John Lancaster said the transaction is a unique opportunity to acquire a successful business of scale with a strong partner it knows well and the proven professionals who have built the business over many years.

Fieldwood obtained underwritten committed financing for the transaction from a bank group led by Citigroup Global Markets, including Chris Abbate, Jerry Schretter and Steve Trauber. Also participating were J.P. Morgan ( JPM), Deutsche Bank AG ( DB), BofA Merrill Lynch ( BAC) and Goldman Sachs Bank USA.

Fieldwood attracted a $600 million commitment from Riverstone in December with management kicking in another $25 million to focus on acquiring and developing conventional oil and gas assets in North America, including the Gulf of Mexico.

McCarroll leads the company along with other former senior executives of Dynamic Offshore Resources, which became one of the largest operators on the Gulf of Mexico shelf before being sold to SandRidge Energy Inc. ( SD) in 2012 for $1.3 billion. Riverstone backed McCarroll in Dynamic Offshore as well, earning a 3.6 times return on the sale.

Riverstone has raised $25 billion of equity capital across seven investment funds. Goldman Sachs & Co.'s ( GS) Suhail Sikhtian, Shane Young and Ryan Synnott provided financial advice to Apache. Bracewell Giuliani LLP is counseling the company, including Alan Rafte, Kristen Campana, Bruce Jocz, Bryan Loocke, Elizabeth McGinley, Robin Miles, Michael De Voe Piazza, Stephen Boone, Laura Martone and Christopher Miller.

Vinson & Elkins LLP and Simpson Thacher & Bartlett LLP represented Riverstone. V&E's team included David Cohen, Marc Rose, Shay Kuperman, Ted Stockbridge, Sean Becker, Christopher Dawe, Larry Nettles, James Olson, David Peck, David D'Alessandro, Sandy Weiner, Mingda Zhao, Carson Sieving, Alan Alexander and Scott Fulford. Simpson's team consisted of Christopher Brown, Robert Rabalais and Hayley Nivelle.

Written by Claire Poole

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