Apache Corp's pending exit from the Gulf of Mexico Shelf: a case of "musical properties"

— An unusual twist in the pending exit of Apache Corp from the shallow waters of the Gulf of Mexico is that the independent years ago bought properties from sellers whose CEOs at the time now head up the entity with a subsidiary that will buy Apache's shallow-water operation.

If you didn't follow that, it's admittedly complicated.  Just think of it as an oil-industry version of the children's game of "musical chairs," where players continuously shuffle between seats -- or, in this case, between offshore lease blocks.

What it means is that the ex-CEOs of companies that had once sold properties to Apache are essentially, if indirectly, buying back most of those assets by virtue of their current jobs.

Apache, a respected operator on the US Gulf Continental Shelf in water depths mostly of 500 feet and under, said last week it will sell that operation for $3.75 billion to privately held  Fieldwood Energy, a portfolio company launched in late 2012 by big energy investor Riverstone Holdings.  Apache's reason: at this point in the Shelf properties' life, it's more difficult to eke production from them.  Nowadays the operator prefers to focus its efforts on North American resource plays and a few select overseas operations such as the North Sea, Australia, Egypt and Argentina.

For much of its three decades on US Gulf Shelf, Apache was known for its acquire-and-exploit strategy, especially from the late 1990s until about the mid-2000s when it closed some of its largest transactions. The company bought properties that were no longer core to larger operators and wrung from them the maximum production possible.

Those larger operators included billion-dollar transactions with Shell and BP, and later on, Anadarko Petroleum.  Deals with Shell occurred in 1999 and 2003, BP in 2003 and 2006 and Anadarko Petroleum in 2004.  Each time, Wall Street smiled.

At the time of those acquisitions, John Browne was CEO of BP and James Hackett was CEO of Anadarko.  The two chief executives are no longer in those positions and are now Riverstone partners:  Hackett joined the investment firm just last month.  As a result, after Fieldwood closes on the properties September 30, the ex-CEOs will both end up presiding over most of the properties that each of their former companies had once sold to Apache, albeit at a distance.

Those properties include the showcase Grand Isle 40s/West Delta complex that covers two dozen blocks offshore Louisiana, which Apache bought from BP and which Apache CEO Steve Farris in 2006 called "one of the largest fields ever discovered in the Gulf."

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Apache's Gulf of Mexico operation in the first quarter averaged roughly 50,000 b/d of liquids and an impressive 254,000 Mcf/d of natural gas per day. That's a legacy from the days when the Shelf was treasured for its gas content. Moreover, its US Gulf output of 90,000 boe/d of production represented nearly 12% of the 781,819 boe/d of its total global output in the March 2013 quarter.

Still, the asset sale to Fieldwood doesn't steer Apache away from the Gulf entirely.  The seller will retain 50% ownership interest in both the exploration blocks it's selling and also in horizons below production in blocks with current output.  Apache also has deepwater US Gulf operations that include stakes in the high-profile Anadarko-operated ultra-deepwater Lucius and Heidelberg discoveries.

So farewell to the Shelf, Apache, and congratulations on a good run.

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