ExxonMobil Sells North Sea Assets to Apache

By Isabel Ordonez And Alexis Flynn, Wall Street Journal

Apache Corp. is substantially expanding its U.K. presence by buying a number of ExxonMobil’s assets there for $1.75 billion.

The deal, expected to close by year end, highlights Apache’s strategy of acquiring mature oil fields and increasing their production further, while generating extra cash.

For ExxonMobil, the world’s largest public oil company, the move represents the opportunity to dispose of aging properties and reinvest the proceeds in opportunities that offer higher returns, says Fadel Gheit, an analyst with Oppenheimer & Co. Rivals Royal Dutch Shell PLC, BP PLC and Total SA have also recently sold mature North Sea assets in order to concentrate on more lucrative opportunities elsewhere, such as deep-water West Africa, Canadian oil sands or Arctic ventures.

Houston-based Apache, a sizable independent oil-and-gas company, has been on a spending spree recently. Last year it bought assets in Egypt and Canada from U.K. oil giant BP. It also acquired U.S. Gulf explorer Mariner Energy. The latest deal, which includes Exxon’s Beryl field and other operated and nonoperated producing assets, will add 19,000 barrels of oil equivalent and 58 million cubic feet of natural gas a day to Apache’s North Sea output, an amount that is expected to increase Apache production from the region by 54% and raise its proved reserves in the area by 44%.

Apache first invested in the North Sea in 2003 after it bought a 97% interest in the Forties field, the area’s largest, from BP. Its revitalization of the field turned the North Sea into Apache’s highest-returning asset, according to analysts with Simmons & Co.

Apache Chief Executive G. Steven Farris told investors in a conference call that company had tried for many years to buy more quality assets in the North Sea, an area that has “tremendous” growth potential.

“It took us eight years,” Mr. Farris said. The acquisition “represents clearly the best assets we have seen in the North Sea since Forties.”

Although the transaction is for $1.75 billion, Mr. Farris said that isn’t the amount of money Apache expects to pay in cash. Its payment to Exxon will be reduced by the cash flow generated by the business properties acquired from the effective date of the transaction, January 2011. The company will also benefit from a 40% tax credit it will receive from the U.K. government that could be applied to its existing income in that country.

UBS analysts estimates the final cash outlay for Apache could be about $875 million.

The deal includes ExxonMobil’s nonoperated interests in the Maclure, Scott and Telford fields and the Benbecula exploration acreage west of the Shetland Islands. Apache will also inherit Exxon Mobil’s work force in the North Sea, which the company said is made up of about 200 workers.

ExxonMobil said the sale wasn’t indicative of a desire to exit the U.K. completely, highlighting its continued share of 40 producing fields through the Shell and Esso joint venture and some refining and marketing assets in the country.

The transaction is subject to regulatory approval, Apache said. U.K. energy minister Charles Hendry said that the deal was “very positive” for the future of offshore oil production in the U.K., due to Apache’s record in the Forties field.