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Apache to buy Cordillera Energy

by Paul Whitfield | Published January 23, 2012 at 9:52 AM

Texan oil and gas company Apache Corp. will pay $2.85 billion in cash and shares for private equity-backed Cordillera Energy Partners III LLC to gain acreage in the Western Anadarko Basin, where new technology will allow it to reach untapped oil and gas.

Houston-based Apache will pay $2.25 billion in cash and $600 million in shares for Cordillera, to add about 71.5 million barrels of oil equivalent located in 254,000 net acres across the Texas Panhandle and Western Oklahoma. The transaction underscores the trend of cash-rich oil and gas companies with strong balance sheets investing in new hydrocarbon expansion.

The deal will "more than doubles Apache's acreage in a highly liquids-rich fairway in the Anadarko Basin," Apache chairman and CEO Steven Farris said in a statement. "Multiple, stacked horizontal targets provide decades of potential drilling locations."

John Abbott, an analyst at Pritchard Capital Partners LLC, said Cordillera was hoping to bring in more than $3 billion, so the final sale price fell somewhat short of its goal.

Denver-headquartered Cordillera Energy Partners III was formed in March 2007 with equity from Encap Investments LP and 20 other institutional and individual investors. It is the third incarnation of the closely held acquisition, exploration and production company Cordillera Energy Partners, which is led by George Solich.

"Upon completion of the [sale], the Cordillera team plans to build upon its previous three iterations of Cordillera companies in the formation of another domestic venture," Cordillera said. The acquisition is Apache's third largest purchase behind its $3.9 billion deal for Mariner Energy Inc., struck in April 2010, and a $7 billion deal for three BP plc oil and gas assets that was agreed in July of the same year.

Almost all of the gas reserves being acquired by Apache are trapped in thick layers of granite and have only recently become economically viable due to relatively new horizontal drilling and multistage fracturing, or fracking, techniques. Apache has employed the new techniques for the past three years at sites in the same region as its new assets.

The Cordillera assets already produce about 18,000 barrels of oil equivalent per day. The acquisition is expected to conclude during the second quarter and will immediately boost Apache earnings and cash flow. The $2.25 billion cash portion of Apache's payment will be funded using long-term debt, the company said.

Shares in Apache closed Friday at $96.80, marginally lower than their previous close. Apache shares have declined almost 23% over the last year.

Apache tapped Goldman, Sachs & Co. and Tudor, Pickering, Holt & Co. for financial advice on the deal.

Cordillera turned to Ralph Eads at Jefferies & Co. Inc. and J.P. Morgan Securities LLC for financial advice. It took legal advice from Andrews Kurth LLP and Thompson & Knight LLP.

-Claire Poole in Houston contributed to this report.

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