Exxon, Apache team up

Deal calls for property transfers, JVs in Canada, three U.S. states, Gulf of Mexico

Ray Tyson

Petroleum News Houston Correspondent

The word’s largest oil company and a major U.S.-based exploration and production independent have formed a far-reaching alliance involving property transfers or joint ventures in West Texas, New Mexico, Western Canada, onshore Louisiana and the Gulf of Mexico’s continental shelf.

The deal, in part requiring Apache to pay ExxonMobil $385 million in cash, “is expected to increase the realized value of the portfolio for both companies,” the companies said in a May 24 joint statement.

Apache, a master at extracting hydrocarbons from older fields, is no stranger to the world’s major oil companies. In recent years, Apache has coughed up hundreds of millions of dollars to purchase mature Canadian and U.S. Gulf assets from Shell and North Sea and U.S. Gulf assets from BP.

ExxonMobil, like a lot of other major oil companies, has been selling off high-cost, low-performing North American assets to independent producers. Recently, XTO Energy purchased $340 million in U.S. properties from ExxonMobil.

Agreement covers 28 U.S. mature producing properties

In exchange, ExxonMobil will retain a revenue interest in the West Texas and New Mexico properties indexed to oil price through 2009. The company also will retain a 50 percent working interest in all properties located beneath the currently producing intervals.

In Canada, ExxonMobil will farm out its interest in about 300,000 acres of undeveloped Alberta property interests in mature areas to Apache. Apache will drill and operate more than 250 wells over an initial two-year period with upside for further drilling, the companies said.

ExxonMobil said it will retain a 37.5 percent royalty on fee lands and 35 percent of its working interest on its Alberta leasehold to benefit from any future production resulting from the drilling program.

Joint offshore exploration in Gulf

To hasten exploration in the Louisiana-Gulf region, the agreement provides flexibility on participation and operatorship. However, ExxonMobil will operate high-cost, deep-gas prospects that rely on “state-of-the-art technology” and Apache may pursue and operate shallower prospects whether ExxonMobil chooses to participate or not, the companies said.

“This allows us to create more shareholder value from mature producing properties and large undeveloped acreage positions, and gives us access to new deep gas prospects in Louisiana both on and offshore,” said Harry Longwell, ExxonMobil director and executive vice president.

Steve Farris, Apache’s chief executive officer, said the general agreement took several months to work out. “We are pleased to have the opportunity to consummate such a far-reaching, value-added transaction with ExxonMobil,” he added.

North American operations contributed about 36 percent of ExxonMobil’s 2003 worldwide production and 37 percent of its upstream earnings. The company, which maintains interests in more than 40 producing Gulf of Mexico fields, also holds interests in about 600 exploration blocks in the Gulf. Apache’s core operations are in the United States, Canada, the U.K. North Sea, Egypt and Western Australia.

Apache said its agreement with ExxonMobil adds production in the Permian Basin, which is one of Apache’s main producing areas, and provides access to “a significant new acreage position in Canada, as well as a world-class partner for deep gas exploration in South Louisiana and the Gulf of Mexico.”