The Associated Press April 15, 2010, 6:06PM ET

Apache to buy Mariner Energy for $2.7 billion

Apache Corp. said Thursday it will buy Mariner Energy Inc. for $2.7 billion, the oil and gas producer's second deal this week aimed at expanding its presence in the Gulf of Mexico.

By adding Mariner, Apache said it becomes the biggest of the "independent" petroleum producers, companies that hunt for oil but do not refine it into gasoline and other products. Other large independents include: Anadarko Petroleum Corp., Chesapeake Energy Corp., Devon Energy Corp., EOG Resources Inc. and XTO Energy Inc.

Apache will also become a major player in deepwater oil drilling -- a business that's becoming increasingly attractive as oil prices rise above $85 a barrel. Apache CEO G. Steven Farris said recent seismic tests also make it easier and cheaper to exploit rich petroleum deposits in the Gulf.

"There's no doubt in my mind that it's the right time to enter the deepwater of the Gulf of Mexico," Farris said in a conference call with investors.

The Apache acquisitions are the latest in a rush of billion-dollar energy deals. According to IHS Herold, a research group that tracks mergers and acquisitions in the oil industry, about $25.4 billion worth of petroleum exploration and production deals worldwide were announced in March. That's five times more than the previous two months combined.

ConocoPhillips said Monday it would sell its minority stake in a Canadian oil sands project for $4.65 billion to Beijing-backed Sinopec. Earlier this month, petroleum explorer SandRidge Energy Inc. said it would buy Arena Resources Inc. for $1.6 billion.

Royal Dutch Shell and PetroChina Co. agreed to take over a variety of assets owned by Australian oil company Arrow Energy Ltd. in a $3.15 billion deal in March. In December, Exxon Mobil said it planned to buy natural-gas producer XTO Energy in an all-stock deal worth $29 billion.

It's usually much easier and cheaper to acquire oil reserves than to find new ones, and oil prices holding above $80 a barrel during the past few months has encouraged many companies to shop for new assets, said Christopher Sheehan, director of M&A research at IHS.

"The stability of crude prices over those months was important" for those deals to happen, Sheehan said.

Jim Byrne, an analyst with BMO Capital Markets-Canada, said many of these companies started shopping for assets after oil prices spiked above $147 a barrel in 2008. Now that the economy is recovering, investors are increasingly blessing these deals with oil prices expected to rise in coming years, Byrne said.

Apache's latest deal is a cash-and-stock offer for Mariner Energy worth about $26.22 per share, a premium of 45 percent over Wednesday's closing price. Apache, based in Houston, will also assume $1.2 billion of Mariner's debt.

The transaction is expected to be completed in the third quarter. It still must be approved by Mariner's shareholders.

Combined with a $1.05 billion deal announced Monday for Devon Energy Corp. assets, Apache said the Mariner assets will boost the company's overall production capacity by about 13 percent.

Apache also gains Mariner's deepwater projects. The company has been exploring the far reaches of the Gulf since 1996. Apache said Mariner's deepwater assets include nearly 100 blocks, seven discoveries in development and more than 50 prospects.

Mariner, which has its principal operations in West Texas, the Gulf Coast and the Gulf of Mexico, also owns more than 240 blocks in shallower parts of the Gulf and more than 200,000 net acres of land-based energy assets.

Besides the oil, Apache will add about 75.5 million cubic feet per day of natural gas production.

Natural gas is expected to be increasingly used in the U.S. and elsewhere because it emits less carbon dioxide than other fossil fuels. Some land-based natural gas operations have come under government scrutiny, however, as people living nearby worry about the environmental effects of cutting-edge horizontal drilling.

Apache shares fell $1.39 to close at $106.67. Mariner shares rose $7.59, or 42 percent, to close at $25.68.


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