IHS Global Insight Perspective | |
Significance | Apache announced its second acquisition of the week yesterday with its plan to merge with Mariner Energy in a cash and stock deal worth US$2.7 billion. |
Implications | Following Apache's earlier announced plans to buy Devon Energy's shallow-water Gulf of Mexico (GOM) assets, Apache's merger with Mariner gives the firm an even larger offshore presence, now including deepwater GOM acreage as well. |
Outlook | The deal is the latest in a flurry of merger and acquisition (M&A) activity among energy firms in the United States, where the gas shale revolution, improved prospects for offshore drilling (not to mention several discoveries), and rising oil prices have set off a new round of asset-shuffling among supermajors and independents alike. |
First Shallow, Then Deep
Houston-based Apache Corp. announced yesterday its plans to buy Mariner Energy for US$2.7 billion, a merger that will make Apache the largest independent oil and gas firm in the United States. Under the terms of the deal, Mariner shareholders will get 0.17043 shares in Apache stock and US$7.80 in cash for each outstanding share of Mariner stock, translating to an overall value of US$2.7 billion. The deal values Mariner at US$26.22/share, a 45% premium to its closing share price on 14 April, the last trading day before the announcement. Apache will also assume US$1.2 billion in debt under the merger agreement, which still must be approved by Mariner shareholders but is expected to close in the third quarter.
The deal to acquire Mariner, which gets 85% of its output from the Gulf of Mexico, is somewhat surprising, not only in that it represents a break from Apache's reputation for financial conservatism, but also in that it marks the firm's second transaction in less than a week. Only this past Monday (12 April), Apache announced it had reached a deal to buy Devon Energy's Gulf of Mexico (GOM) shelf assets for US$1.05 billion. That deal will add production of around 19,000 barrels of oil equivalent per day (boe/d) and proven plus probable reserves of 83 million boe across 158 blocks to Apache's portfolio.
Yesterday, Apache signalled its intent to take a step deeper into the Gulf with its acquisition of Mariner, Apache's first corporate acquisition in 14 years. The Mariner deal cements Apache's portfolio in the shallow waters of the Gulf of Mexico while marking a definitive step into the deepwater. Mariner produced approximately 63,000 boe/d in February from the Gulf shelf and deepwater, as well as the Permian Basin and unconventional onshore plays. Mariner had proven reserves of 181 million boe as of end-2009, but also a further 2 billion boe in potential, as-yet-unbooked resources. Mariner's deepwater portfolio includes nearly 100 blocks and more than 50 prospects. The company also has more than 240 blocks on the Gulf shelf and more than 200,000 net acres across several emerging onshore plays.
This high-growth potential was clearly the draw for Apache in moving to snatch up Mariner. Apache CEO G. Steven Farris told investors in a conference call that "There's no doubt in my mind that it's the right time to enter the deepwater of the Gulf of Mexico," noting that Apache has been considering this "for a number of years". Farris added in a statement that, "This is the right set of assets and the right time for Apache to expand its deepwater presence. Mariner brings an inventory of developments and prospects that will jump-start our position in the deepwater Gulf; Apache's financial resources will maximize the value of the portfolio."
Outlook and Implications
Rising oil prices, a string of recent discoveries in the U.S. GOM, and improvements in seismic technology surely also played a part in Apache's decision to make an offer that Mariner could not refuse. Mariner CEO Scott D. Josey said in a statement that "The combination with Apache is an excellent outcome for Mariner's stakeholders. Our shareholders will be rewarded for their faith and support in our company with the opportunity to further benefit from the upside provided from the merger."
With oil prices continuing to rise, climbing above US$85/b this week, the dark days of late 2008/early 2009 look to be firmly in the rear-view mirror, and bullish sentiment in the oil patch is translating into a frenetic pace of mergers and acquisitions (M&A) among energy firms in the United States (see "Related Articles"). The boom in unconventional gas production has translated into a push by oil companies to secure acreage in major shale gas formations, but at the same time, low gas prices (partly the result of the surprising output surge) have prompted many gas firms to seek to diversify into the oil business in order to hedge their bets and balance their portfolios.
A string of recent discoveries in the GOM, as well as expectations that additional offshore areas will soon be open for drilling, has added to the M&A frenzy. For every company looking to rebalance its portfolio by divesting of assets—Devon Energy and ConocoPhillips, among others—there is another firm confident of taking the next step to expand its operations, entering a new area or stepping up to the next level. Apache's move to acquire Devon's shallow-water GOM assets, followed by its announcement of its plans to merge with Mariner, signal that the firm is ready to take its offshore game up a notch by going deeper.
Related Articles
- United States: 13 April 2010: Apache Agrees to Buy Devon's GOM Assets
- United States: 12 April 2010: Reliance Industries Strikes US$1.7-bil. Shale Gas Deal with Atlas Energy
- United States: 6 April 2010: SandRidge to Acquire Arena Resources in US$1.6-bil. Deal
- United States: 2 April 2010: Shell Kicks Off Oil Production at Deepest Offshore Project in Gulf of Mexico
- United States: 1 April 2010: President Announces New Rules for U.S. Oil and Gas Drilling Offshore
- United States: 22 March 2010: Shell, Nexen Report "Significant" Discovery in Eastern Gulf of Mexico
- United States: 16 March 2010: CONSOL Energy Strikes US$3.48-bil. Deal to Buy Dominion Resources' Upstream Gas Assets
- United States: 18 February 2010: Mitsui Takes US$1.4-bil. Position in U.S. Marcellus Shale
- United States: 27 January 2010: Total Closes US$2.25-bil. JV Deal with Chesapeake for Stake in U.S. Barnett Shale
- United States: 15 December 2009: ExxonMobil Announces US$41-bil. Deal to Buy XTO Energy