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Apache Unit Closes Deal with Chevron

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Apache Canada Limited – a subsidiary of U.S. energy firm Apache Corporation (APA - Free Report) closed its previously announced deal with Chevron Canada Limited for the development of Kitimat LNG project.

Per the deal, the two companies will develop and operate the Kitimat LNG project and will also build natural gas resources in the Horn River and Liard shale-gas fields in British Columbia.

Earlier, Chevron Canada – a subsidiary of U.S. energy behemoth Chevron Corporation (CVX - Free Report) bought the respective 30% stakes owned by EOG Resources Inc. (EOG - Free Report) and Encana Corporation (ECA - Free Report) in Kitimat LNG and Pacific Trail Pipelines projects. Subsequently, Chevron Canada sold 10% of its acquired interest in the development to Apache Canada, thereby increasing the latter’s share in the project from 40% to 50%.  Chevron Canada will assume operatorship of both the pipeline and the terminal.   

In addition, Chevron Canada acquired around 110,000 net acres in the Horn River basin from Apache Canada, EOG and Encana. Moreover, it bought approximately 212,000 net acres of land in the Liard Basin from Apache. Along with Apache Canada, Chevron Canada has shared 50% operating ownership in both these projects. The former will be the operator of the natural gas developments.

The net proceeds of Apache Canada from all these transactions were $405 million.

Founded in 1954, Houston, Texas-based Apache Corporation is one of the world's leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

We like Apache Corporation’s large geographically-diversified reserve base, as well as its balanced exposure to natural gas and crude oil, and multiyear trends in reserve replacement and production growth. This allows management to allocate capital and resources to high-return projects.

However, the company’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

Apache Corporation currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

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