Woodside Petroleum Ltd., Australia’s second- biggest oil and natural gas producer, agreed to buy Apache Corp.’s (NYSE: APA) stake in the Wheatstone and Kitimat LNG projects and associated reserves for $2.75 billion.
“I am confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production,” G. Steven Farris, chairman and CEO of Houston-based Apache, said in a statement Dec. 15. Apache will also get an estimated $1 billion for spending on the projects from June 30 until closing.
The projects are among dozens under construction or consideration worldwide seeking to feed Asian markets hungry for gas. Both terminals are being done in partnership with Chevron Corp. (NYSE: CVX). The $24 billion (A$29 billion) Wheatstone facility in Western Australia, which is about halfway done, would be capable of shipping 8.9 million metric tons a year. The Kitimat project is one of several proposed facilities that would ship gas from British Columbia to Asia.
Woodside has said it was seeking acquisitions after its $2.7 billion plan to buy back shares from Royal Dutch Shell Plc (NYSE: RDS-A, RDS-B) was blocked by shareholders. Apache, facing pressure from activist hedge fund Jana Partners LLC to cut spending and focus drilling in the U.S., announced in July it was seeking to exit the proposed Canadian project and the facility under construction in Australia.
Cash Flow
Apache is selling a 13% stake in Wheatstone and a 65% interest in offshore gas fields that would supply it, as well as the Balnaves oil development. Production from the Wheatstone gas export project, slated to begin by 2016, was expected to generate more than $1 billion a year in free cash flow for Apache, Farris has said.
The decision to sell the Wheatstone project was a mistake for Apache given the collapse in oil prices and how much cash flow the development would have generated over such a long period of time, Fadel Gheit, an analyst at Oppenheimer & Co. in New York, said Dec. 15 in a phone interview.
“This seemed to be a very good project long term,” said Gheit, who rates Apache the equivalent of buy and doesn’t own shares. “This project is running ahead of schedule, within budget, so I’m not sure why Apache wants to monetize international assets.”
Apache holds a 50% stake in Kitimat and related acreage in the Horn River and Liard basins in British Columbia. The project has yet to reach a final investment decision.
The sale is expected to close in the first quarter, Apache said. Apache rose 1.9% to $57.50 at 8:41 a.m. in New York on Dec. 15.
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