Weekly Update: Apache, Crescent Point Energy play it safe with bolt-on acquisitions

This week’s upstream M&A was dominated by two large bolt-on acquisitions by Apache and Crescent Point Energy, within North America. Although the deals lacked the sensationalism that comes from a company making a bold move into a new area, they both involved oil weighted producing assets with additional upside in areas that the companies have vast experience in exploiting. The fallout on the market was subdued with neither company’s share price posting any dramatic movements despite the relatively large outlays.

The larger of the two deals came from Apache Corp., a company who formed a formidable reputation during their rise to prominence, as a company who could acquire mature assets and extract previously unforeseen value from them. Of late the company has expanded on their strategy to also include the acquisition of early stage shale resources.

Their latest deal to acquire Cordillera Energy Partners III, LLC for $2.85 billion is a healthy blend of these two strategies. Cordillera owns 254,000 acres in the liquids fairway of the Anadarko basin, an area in which Apache has operated in for over 50 years. The Granite Wash amongst other plays being acquired has several different target zones at differing depths. The conventional zones have a long history of production, but other tight zones which although not technically shale resources, have been opened up by the advances made in horizontal drilling and fracing technologies.

Crescent Point’s bolt on acquisition came via their C$611 million acquisition of Wild Stream Exploration Inc. The motivation behind the deal is for Crescent Point to consolidate its position as the largest owner of land in the Lower Shaunavon play of Saskatchewan, a play which is estimated to hold over 4 billion boe of original oil in place, albeit with a current recovery rate of around 2%. As part of the deal Wild Stream Exploration will be spinning off their Dodsland area assets into a new junior public oil and gas company.

Crescent point however will still be gaining 5,400 boe/d of production and 28.7 million boe of proved and probable reserves. After taking into account the undeveloped land value and the tax pools that Wild Stream currently owns, the normalized cost per 1P boe purchase price equates to C$26.64, which Crescent Point will expect to reduce if they are successful in increasing the recovery factor on the acquired assets.

In the North Sea, EnQuest Plc acquired an additional 25% interest and operatorship of the Kraken asset, an oil field that was discovered during 2011 with a flow rate of 4,500 b/d. The final consideration which will be in the form of a cost carry to Nautical will be dependent on the level of 2P reserves booked during the development stage. The consideration will range from a firm $150 million, to a possible $240 million if the field books over 166 million barrels of proved and probable reserves during the development stage.

The deal by EnQuest will enable a faster rate of development of the field as the previous operator Nautical, already has a debt-to-equity level of 80% and no incoming revenue amidst a continually restrictive financings market.

Meanwhile AWE Limited has acquired two production sharing contracts in the shallow waters offshore Indonesia, from Malaysian investment company, Genting Berhad. The consideration for the currently undeveloped assets will be comprised of $39 million in cash and the assumption of $100 million of debt. The acquired assets are composed of the oil weighted North West Natuna PSC, containing the Ande Ande Lumut discovery and the gas weighted Anambas PSC. The Ande Ande Lumut unit alone is estimated to contain 76 million barrels of recoverable heavy oil and is forecasted to have an initial plateau production rate of 25,000 barrels per day in 2014.

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

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