U.S.energy firm Apache Corporation (APA) has priced a public offering of bonds – 1.75% notes due 2017, 3.25% notes due 2022 and 4.75% notes due 2043 – aggregating $3 billion. The three-tranche senior unsecured note offer, comprising of 5-, 10- and 31- year maturities, have principal amounts of $400 million, $1.1 billion and $1.5 billion, respectively.
Apache plans to use the net proceeds from this offering – expected to be approximately $2.96 billion after the underwriting discount and estimated offering expenses – to finance the cash component associated with the purchase of privately held Cordillera Energy Partners III LLC, pay back its 6.25% senior unsecured notes due later this month, and for general corporate purposes.
On January 23, 2012, Apache agreed to acquire Denver, Colorado-based energy firm Cordillera Energy Partners III LLC for $2.85 billion. The Houston-based oil and gas explorer intends to pay the required amount through a combination of common stock worth $600 million and the remaining in cash that will be funded by debt.
(Read our full coverage on the proposed Cordillera Energy Partners acquisition: Apache to Acquire Cordillera)
Apache – the number two U.S. independent oil and natural gas producer by market value behind Anadarko Petroleum Corporation (APC) – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.
We like Apache’s large geographically diverse reserve base, its balanced exposure to natural gas and crude oil, and its multi-year trends in reserve replacement and production growth.
Despite being one of the largest domestic exploration and production companies, Apache still boasts an annual output growth in excess of 10%. A pristine balance sheet helps the company to capitalize on investment opportunities and strategic acquisitions, thereby further improving growth visibility.
However, we see limited upside potential for shares, taking into consideration Apache’s sensitivity to gas/oil price volatility, its drilling results, costs, geo-political risks and project timing delays. As such, we expect Apache to perform in line with the broader market.
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