Houston-based Apache Corp. (NYSE; Nasdaq: APA) will bulk up its position in the Western Anadarko Basin with the acquisition of George Solich’s privately held Cordillera Energy Partners III LLC, in a $2.85-billion cash and stock deal.
Apache will pay $2.25 billion in cash funded by debt and $600 million in shares.
Cordillera, based in Denver and backed by private-equity provider EnCap Investments LP, holds 254,000 net acres in the Texas Panhandle and western Oklahoma targeting the Granite Wash, Tonkawa, Cleveland and Marmaton plays. Estimated proved reserves are 71.5 million barrels of oil equivalent with current net production of 18,000 BOE per day. Apache estimates 14,000 potential drilling locations.
“Multiple, stacked horizontal targets provide decades of potential drilling locations,” says Steven Farris, Apache chairman and chief executive. “Because 80% of revenue comes from liquid hydrocarbons production, this transaction provides compelling economics at current commodity prices.”
Farris says Apache has operated in the basin for 50 years, and will more than double its position there with this acquisition.
“The experience we have gained drilling 500 wells in the Granite Wash play—including 79 horizontals drilled since 2009—gives us an in-depth understanding of the geology and the operating environment and will enable us to hit the ground running.”
Having recently referred to the multi-stacked basin as the mother of all stacked plays, Solich, Cordillera president and chief executive, says, “The merger of Cordillera into Apache presents a tremendous opportunity for Apache to combine the Cordillera assets with Apache’s legacy Western Anadarko Basin position, creating a platform for a multi-decade development program in some of the most economic oil and liquids-rich gas targets in the onshore U.S.”
He adds, “Considering we are taking a meaningful amount of the consideration in Apache shares reflects our confidence that the quality of the asset base will continue to yield economic growth in production and cash flow for years to come.”
Cordillera has 11 rigs operating in the play across 15 counties in the Texas Panhandle and western Oklahoma. Cordillera III was formed in 2007 following two previous successful sales, all focused in the Anadarko Basin. Solich says the Cordillera team intends to form a fourth domestic venture following the sale.
The effective date is Sept. 1, 2011. Closing is expected on April 30.
Goldman, Sachs & Co. and Tudor, Pickering, Holt & Co. were advisors to Apache. Jefferies & Co. Inc. and J.P. Morgan Securities LLC were financial advisors to Cordillera, and Andrews Kurth LLP and Thompson & Knight LLP were legal advisors.
Wells Fargo Securities analyst David Tameron estimates Apache is paying $39.86 per barrel proved, and is “a nice bolt-on to Apache’s already extensive Panhandle/Oklahoma position.” Applying a $7,500/MMcfe per day value to current production, he estimates Cordillera is receiving approximately $8,000 per net acre.
“As the company has had improving success in horizontal tight-oil plays such as the Hogshooter, Cleveland, Marmaton, etc. we believe the lofty purchase price implies management enthusiasm for Apache’s existing inventory in the play. Cordillera's acreage looks to be closest to the area where Apache is targeting the Hogshooter.”
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