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Independent oil and gas firm Apache Corporation ( APA - Analyst Report ) announced plans to take over Denver, Colorado-based energy company Cordillera Energy Partners III LLC. The expected acquisition will cost Apache approximately $2.85 billion. Apache intends to pay the required amount through a combination of common stock worth $600 million and the remaining in cash that will be funded by debt.
With this deal, Apache will gain access to Cordillera’s estimated proved reserves of 71.5 million barrels of oil equivalent and current net production of 18,000 barrels of equivalents per day.
The to-be-purchased properties span across 254,000 net acres in the prolific Granite Wash, Tonkawa, Cleveland and Marmaton plays in western Oklahoma and the Texas Panhandle. Privately held Cordillera also has vast acreage with nearly 14,000 potential drilling locations in liquids-rich Anadarko Basin plays.
Apache expects this acquisition to be accretive to its 2012 earnings and cash flow and stated that the development drilling program will be self-funding from 2013.
We expect this transaction to further supplement Apache’s holdings in the fertile Anadarko Basin, where it has been actively operating for more than 50 years. Combining with Apache’s owned assets in the basin, the acquired property will provide a lucrative ground for a long-term development program in some of the most cost-effective, oil- and liquids-rich gas targets in the onshore region.
Of late, Apache has been on an acquisition spree for the expansion of its operational territories. In early January, Apache closed the acquisition of Mobil North Sea Limited assets for $1.25 billion from the U.S. oil giant ExxonMobil Corporation ( XOM - Analyst Report ) .
We believe that Apache’s long-term production growth visibility improved significantly following the asset acquisition of BP plc ( BP - Analyst Report ) and the purchase of a portion of Devon Energy’s ( DVN - Analyst Report ) Gulf of Mexico assets. These new acreage positions complement the company’s diversified asset base.
Apache currently retains a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. We are also maintaining a long-term Neutral recommendation on the stock.
We think that Apache is in a better position to weather the current uncertain environment than many of its peers in the industry, given its solid production growth outlook, strong financial health and diversified asset base. However, we believe that these factors are adequately reflected in the present valuation, leaving little room for meaningful upside from current levels.
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