Independent oil and gas exploration company Apache Corporation (APA) procured the oil and gas assets from Devon Energy Corporation (DVN) for $1.05 billion, almost 8 weeks after the announcement of the acquisition. The assets were in the shallow waters of the Gulf of Mexico Shelf with an estimated net proved and probable reserves of 83 million barrels of oil equivalent (about 41 million barrels equivalent are oil and natural gas liquids) at year-end 2009.
 
The acquired properties are expected to produce approximately 9,500 barrels of liquid hydrocarbons and 55 million cubic feet of gas per day (net). Nearly 90% of the proved reserves are held by seven major fields with Apache expected to operate 75% of the production. Initial evaluation by Apache resulted in identifying 79 recompletion opportunities and 26 drilling prospects across the acquired assets.
 
Devon’s quest to divest all Gulf assets comes to an end with this transaction diverting the company’s focus to onshore assets in North America. The company will distribute the proceeds from the sales among onshore property expansion, debt reduction and share buybacks.
 
Following the acquisition, Apache’s Gulf assets portfolio has been enhanced and it will account for almost 20% of the company’s estimated worldwide production. Management is guiding toward annual production growth of approximately 5 – 10% in 2010 as the long-term production growth visibility has significantly improved. The acquisition will not only boost Apache’s per share earnings, cash flow, production and reserves in 2010, but will also augment its track record of value creation.
 
Although the acquisition has its positive impacts, we do not expect Apache’s shares to outperform its peers in the next couple of quarters as the company will take time to absorb the benefits of the transaction.
Read the full analyst report on “APA”
Read the full analyst report on “DVN”
Zacks Investment Research