Apache Corp. (NYSE, Nasdaq: APA) has agreed to acquire Cordillera Energy Partners III LLC, a privately held company with substantial operations that include approximately 254,000 net acres in the Granite Wash, Tonkawa, Cleveland and Marmaton plays in western Oklahoma and the Texas Panhandle, for $2.85 billion.  

The sellers, including EnCap Investments, other institutional investors and Cordillera management will receive approximately $600 million in Apache common stock subject to customary lock-up provisions. The balance of the consideration, $2.25 billion, will be funded with debt.

In addition to estimated proved reserves of 71.5 million barrels of oil equivalent and current net production of 18,000 boe per day, Cordillera has assembled a large acreage position with significant resource potential including 14,000 potential drilling locations in liquids-rich Anadarko Basin plays. The acquired acreage is characterized by high working interest and operatorship; approximately half is held by production. Cordillera will continue to acquire acreage in the area on Apache's behalf through closing, which is expected to occur by April 20, 2012.

"This is an important growth step for Apache — a unique bolt-on opportunity that more than doubles Apache's acreage in a highly liquids-rich fairway in the Anadarko Basin," said G. Steven Farris, chairman and CEO. "Apache has been active in the Basin for more than 50 years; 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.

"Multiple, stacked horizontal targets provide decades of potential drilling locations," Farris said. "Because 80% of revenue comes from liquid hydrocarbons production, this transaction provides compelling economics at current commodity prices."

George H. Solich, Cordillera's president and CEO, commented: "The combination is an excellent outcome for the Cordillera shareholders. We are taking a meaningful amount of the consideration in Apache shares, reflecting our confidence that the quality of the asset base will continue to yield economic growth in production and cash flow for years to come."

As a result of Apache's shift to horizontal drilling with multi-stage completions, horizontal wells drilled in the last three years now account for about half of Apache's Central Region production which totaled about 40,000 net barrels of oil equivalent per day at year-end 2011. "With this growth step, we expect to more than triple the pace of our operated activity in the multi-play fairway of combined Apache and Cordillera acreage during 2012," Farris said.

This is the third iteration of Cordillera Energy Partners, led by George H. Solich, president and CEO, and his senior management team. Cordillera III was formed in March 2007 with equity capitalization from EnCap Investments LP and 20 institutional and individual investors.

Solich remarked, “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 US. The combination is an excellent outcome for the Cordillera shareholders and 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.”

Upon completion of the transition, the Cordillera team plans to build upon its previous three iterations of Cordillera companies in the formation of another domestic venture.

Apache's advisers on the transaction were Goldman, Sachs & Co. and Tudor, Pickering, Holt & Co. Jefferies & Co.  Inc. and JP Morgan Securities LLC acted as financial advisors, and Andrews Kurth LLP and Thompson & Knight LLP acted as legal advisors, to Cordillera in connection with the transaction.

The acquisition is expected to be accretive to Apache's earnings and cash flow beginning in 2012. The development drilling program is self-funding beginning in 2013.