Houston-based oil and gas exploration and production company Apache Corp. and Mariner Energy have entered a merger agreement for roughly $2.7 billion (including $1.2 billion debt). The transaction gives Apache its first major foray into the Gulf of Mexico deepwater and comes just days after Houston-based Mariner Energy acquired additional DJ Basin acreage. 

"This is a strategic step and a natural extension into the deepwater Gulf for Apache," said G. Steven Farris, Apache's chairman and CEO. "Mariner provides an exciting new platform for growth in the deepwater and complements our strengths in the Gulf Shelf and the Permian Basin."

"The combination with Apache is an excellent outcome for Mariner's stakeholders. Our partners will work with a world-class company with the financial and technical resources to fully exploit our assets," said Scott D. Josey, Mariner's chairman, CEO, and president. 

Under the agreement, Mariner shareholders will receive, in aggregate, 0.17043 of a share of Apache common stock and $7.80 in cash for each outstanding share of Mariner's common stock. At Apache's closing stock price of $108.06 on April 14, 2010, the transaction values Mariner's shares at $26.22 per share.

In February, Mariner, with principal operations in the Permian Basin, Gulf Coast, and the Gulf of Mexico, produced 63,000 barrels of oil equivalent (boe) per day from the Gulf Shelf and deepwater, the Permian Basin and unconventional onshore plays. At year-end 2009, Mariner had estimated proved reserves of 181 million boe (47% liquid hydrocarbons) as well as unbooked resource potential of 2 billion boe.

Key unbooked deepwater discoveries include the Lucius and Heidelberg where the company is currently drilling.

"Mariner brings an inventory of developments and prospects that will jump-start our position in the deepwater Gulf; Apache's financial resources will maximize the value of the portfolio," he said. "It's the right time because recent advances in seismic technology and continued enhancements in facilities design have reduced the risks in one of the world's most prolific oil exploration basins."

Apache and Mariner teamed up in the 2008 deepwater Geauxpher discovery and development at Garden Banks 462.

Mariner also has more than 240 blocks on the Gulf Shelf and more than 200,000 net acres across several emerging onshore plays.

Apache's financial advisers in this transaction were Goldman, Sachs & Co. and JP Morgan Securities. Mariner was advised by Credit Suisse Securities (USA) LLC.

Apache has operations in the US, Canada, Egypt, the UK North Sea, Australia, and Argentina.

What does the transaction mean for GOM operators?
According to Jefferies & Co., a wave of GoM consolidation is unlikely. “[Mariner] is unique among GoM names with its strong deepwater inventory. However, no sign [Apache] is paying beyond [Mariner’s] unbooked discoveries,” the company’s research department noted in a statement after the announcement.

The implied transaction metric is $10,800 per mcfe of daily production, or $3.60/mcfe of proved reserves. While mariner’s portfolio of shelf (38% of Feb 2010 production), deepwater (41%), and onshore (21%) commands a premium, Jefferies believes the recent merger price “compares well with recent Gulf of Mexico transactions,” including Energy XXI’s purchase of Mitsui GOM properties at $8,500/mcfe of flowing production and Apache’s purchase of Devon’s shelf assets at $9,375/mcfe earlier in the week.

Completion of the transaction is expected in the third quarter of 2010.