NEW YORK (Dow Jones)--Apache Corp. (APA) says it will buy all of BP PLC's (BP) remaining oil and natural-gas fields on the Gulf of Mexico's continental shelf for $1.3 billion, investing in offshore production at a time when recent hurricanes have scared away investors and other oil companies.
This is the latest deal in which Apache, a Houston-based independent oil and natural-gas producer, will buy aging fields from a so-called supermajor oil company. Apache typically buys leftovers and then squeezes out more oil and gas at lower production costs than major energy companies. The deal marks BP's exit from the shallower Gulf waters, although it is still active in deeper waters where production typically costs much more but the reservoirs are larger.
In the deal, expected to be announced Wednesday morning, Apache will acquire 18 fields with proved reserves of the oil and natural-gas equivalent of about 57.8 million barrels. That works out to about $22.50 a barrel at a time when oil closed above $70/bbl for the first time this week. The fields are expected to yield 8,600 bbls of crude and liquids production and 108 million cubic feet of daily natural-gas production.
During the past two summers, however, hurricanes Ivan, Katrina and Rita have shown how risky the Gulf of Mexico can be. Ivan, in 2004, triggered mudslides that scrambled underwater pipelines. Last year, Katrina and Rita destroyed 115 platforms and damaged nearly 200 pipelines. About 18% of daily oil and natural-gas production in the Gulf is still idle, nearly eight months after Katrina.
Still, Apache is an experienced Gulf operator, and company officials say now is a good time to buy Gulf assets because the region is out of favor and prices are lower than usual. The company has hedged about half of expected production from the BP fields through 2008, locking in prices that protect a return on its investment. This is the second major deal Apache and BP have struck in recent years. In 2003, Apache spent $1.3 billion to purchase the North Sea "Forties" field and an assortment of shallow-water Gulf properties from BP.
Buoyed by strong oil and natural-gas prices, Apache is also expected to announce that it will spent about $1 billion to repurchase as many as 15 million shares. Apache expects to issue commercial paper to finance the deal, but believes it debt-to-capitalization ratio will be below 23%.
In 4 p.m. New York Stock Exchange composite trading, Apache shares were up $1.34, or 2%, to $70.23.