Weekly Update: Apache makes surprise move for Exxon North Sea assets

Eoin Coyne
Evaluate Energy

Apache agreed a $1.75 billion deal this week with ExxonMobil for the acquisition of a mature portfolio of UK North Sea assets. The deal is the largest in the region since the UK Government increased the supplementary tax rate to 32% in the UK’s March 2011 budget, which increased the tax burden for some fields to 82%. Despite some companies’ immediate knee-jerk reaction to the surprise tax hike of threatening to withdraw from the area altogether, activity has been increasing of late with BP recently pledging £3.7 billion in capex for two field development plans.

Whilst many of Apache’s peers have taken a strategy of moving into frontier regions and unconventional shale resources, Apache has built a strong reputation for acquiring and extending the life of mature assets. The portfolio of assets acquired from ExxonMobil is weighted 70% towards oil and the cash consideration equates to an unadjusted cost per proved barrel of $26. Factoring in the valuation of the midstream and exploration assets that are part of the deal however decreases the cost per barrel to a more respectable $19. The current reserve life of the assets currently stands at just 6.5 years. Apache will hope to extend this by using the experience gained since its 2003 entry into the region via the Forties field and the “low-risk” exploration projects that Apache will aim to turn into bookable reserves.

The UK also accounted for the next largest upstream deal of the week, with IGAS Plc acquiring Star Energy Group, an onshore UK-focused subsidiary of Petronas, for £110 million. As part of the deal, IGAS will be able to utilise significant tax losses carried by Star Energy, thus circumventing in part the restrictive UK tax regime for oil and gas producers.

In Canada, Manitok Energy announced an $85 million deal conducted jointly with Petrus Resources, a company formed by Don Gray, the co-founder of Peyto Exploration & Development, who has also enlisted three former Peyto employees to the team. Petrus Resources was formed to “capitalize on the current opportunity to aggregate natural gas assets at attractive prices” and its first acquisition ties in closely with this remit. The assets acquired are in the Alberta Foothills area and are 94% gas. After adjusting the acquisition metrics for the value of exploration land, the cost per proven boe equates to just $7.48 and the cost per proven and probable boe $5.45.

ExxonMobil confirmed that it was a buyer of assets in the Utica Shale this week following a report from local press. The super major, who has a history of keeping its deals with private companies under wraps, has signed lease agreements with “scores of land owners” recently. ExxonMobil was a late entrant to the shale gas boom in the US before its costly acquisition of XTO Energy, and with the entrance into the Utica Shale in the early stages of its development it will aim to avoid the hike in land prices that will come if the shale play lives up to its early billing as the next Eagle Ford.

Meanwhile, Indonesia revealed the preliminary results of its latest licensing round, which drew $116 million of signature bonuses and spending commitments over 9 blocks. Likewise, the Alberta government revealed another strong result from its latest land sale that reaped $298 million. The result elevates the province’s impressive tally for the year so far to $3 billion and puts it on track to surpass the previous annual record of receipts from land sales of $3.4 billion in 2006. The key driver in the sustained land grab in the region has been the offering of positions in the emerging liquids-rich Duvernay play, which has been opened up as a viable asset by advances in horizontal drilling technology.


Looking for previous deals? Check out the Weekly Updates page for archives.

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