Houston oil and gas explorer Apache Corp. (APA) , which has been pressured by activist investor Jana Partners LLC to shed its international assets, said Monday, Dec. 15, it agreed to sell its interest in liquefied natural gas projects and their related oil and gas reserves in Australia and Canada to Woodside Petroleum Ltd. for $2.75 billion.
The company will also be reimbursed for net expenditures on the projects between June 30 and closing, which is expected to bring in another $1 billion.
Apache will sell its equity ownership in its Australian unit, Apache Julimar Pty Ltd., which owns 13% of the Wheatstone project and 65% of the WA-49-L block, including the Julimar/Brunello offshore gas fields and the Balnaves oil development. It's also selling its 50% stake in the Kitimat project and related exploration and production acreage in the Horn River and Liard natural gas basins in British Columbia, Canada.
Apache thinks net proceeds will reach $3.7 billion. The sale will trigger an estimated $650 million cash tax liability, $600 million of which is associated with the income tax due on Apache's overall foreign loss account balance. Apache expects that it will have the flexibility to repatriate cash generated from foreign operations and future international strategic transactions with minimal U.S. cash tax impact.
"Today's announcement marks the successful completion of one of our primary strategic goals of exiting the Wheatstone and Kitimat LNG projects," Apache chairman, CEO and president G. Steven Farris said in a statement. "I am proud of Apache's legacy in advancing the Wheatstone and Kitimat LNG projects and I am confident that Woodside's participation will have a positive impact in seeing these world-class LNG facilities through to first production."
Farris said the proceeds will be used to cut debt, repurchase shares and pursue other opportunities to enhance the company's asset base "and drive profitable production growth."
Apache will continue to hold upstream acreage in offshore Western Australia in the Carnarvon, Exmouth and Canning basins along with related hydrocarbon reserves and production. It's also keeping its 49% interest in Yara Holdings Nitrates Pty Ltd. and 10% interest in a related ammonium nitrate plant.
The transaction is expected to close in the first quarter if it clears government and regulatory approvals. The Kitimat sale also must clear operator consents. Chevron Corp. (CVX) bought half of the Kitimat project from Encana Corp. (ECA) and EOG Resources Inc. in 2012 for an estimated $1.1 billion (Chevron is also a partner in the Wheatstone facility with a controlling stake.)
Global Hunter Securities Inc. analyst Mike Kelly wrote in a report that Apache is exiting the LNG business in an efficient manner by selling both projects to Woodside in a single transaction. He said the price compares well against Royal Dutch Shell plc's $1.1 billion Wheatstone sale earlier this year and Chevron's purchase of the 50% stake in Kitimat.
"APA has been very transparent about its desire to sell both projects and refocus on its efforts on NAM [North American] resource plays, so this sale comes as no surprise and should likely be received well in light of an environment with a tough commodity backdrop," he said.
Analysts at Simmons & Co. International said they had valued Wheatstone and Julimar at $2.5 billion and Balnaves at $600 million but hadn't ascribed any value to Kitimat or the related upstream assets, so the transaction is $1 per share dilutive to their $71 per share net asset value for the company. Still, they viewed the move as good news.
"This is a big win for APA," they said. "Given the steep fall in oil prices, we were worried that it might take longer to close this deal. Removing LNG further simplifies the company (making it easier to spin off the remaining international assets) and reduces onerous future capital spending obligations."
Fadel Gheit, who follows Apache at Oppenheimer & Co., didn't see the move as so smart. "They traded $1 billion per year in cash flow for 20 years for $3.75 billion in cash," he said.
Apache has been selling noncore assets to rebalance the company more toward oil and natural gas liquids production, buy back shares — and keep activist investors at bay. In July, the Wall Street Journal reported that Jana Partners had built a $1 billion stake in the company and was calling for it to sell off its international properties to focus on its U.S. holdings.
Its asset sales have included its Argentinian operations in February to YPF SA for $852 million; its producing oil and gas properties in the Deep Basin area of Canada's western Alberta and British Columbia in April to Canadian Natural Resources Ltd. for $374 million; and its nonoperated interests in the Lucius and Heidelberg oil production development projects and 11 exploration leases in the area in May to Freeport-McMoRan Inc. (FCX) for $1.4 billion. Last month, it also sold properties in Louisiana, Texas and Oklahoma to unnamed buyers for $1.4 billion.
Apache itself has been thought of as a takeover target. In June, trader website RANsquawk reported that ExxonMobil Corp. (XOM) was looking to make a bid for the company at $115 to $120 per share, a report which Apache denied.