The Gulf of Mexico oil spill washed ashore in Alberta on Tuesday after Apache Corp. snapped up BP's western Canadian natural gas operations as part of a $7-billion US asset sale to raise cash to help pay for damages arising from the Gulf of Mexico oil spill.
Houston-based Apache will pay $3.25 billion US for the Canadian properties, which include Montney and unconventional gas plays in Alberta and northeastern British Columbia.
The move will boost Apache's production by 66 per cent, further cementing its position as one of Canada's largest natural gas producers.
The deal is the biggest since Chinese refining giant Sinopec bought ConocoPhillips' nine per cent stake in Syncrude Canada for $4.65 billion US this year.
"Most of the acquisitions of this size have been corporate acquisitions rather than asset transactions," said Michael Tims, chairman of Peters & Co.
"As I read it, it doesn't quite double Apache, but it makes a pretty significant impact. That's a significant lift to their Canadian operations."
The sale does not include the British oil major's oilsands division, which comprises a joint venture with Husky Energy, the Terre de Grace project with Value Creation Inc. and a project with Devon Canada to develop the Kirby project.
Nor does it include the company's natural gas liquids and marketing businesses in Alberta, or exploration leases in the Beaufort Sea.
Apache CEO Steven Farris said the Canadian assets were the cream of the deal, dovetailing with its existing unconventional gas assets and its emerging Horn River properties.
"I didn't anticipate this one. If it hadn't been for the Gulf of Mexico incident . . . I'm sure we wouldn't be sitting here tonight," he said on a conference call.
It wasn't immediately clear if the deal will lead to layoffs, but Farris said the company will look to begin rationalizing its Canadian portfolio in early 2011. "We have an awful lot of smaller stuff in Alberta we'll probably decide don't fit our portfolio anymore," he said.
BP Canada spokeswoman Hejdi Feick said a little less than half of the company's Canadian workforce, or 520 of 1,300 people, will be directly affected by the deal. She said it's not clear how many will be going over to Apache.
"It's up to Apache who they decide to take, but certainly we see that the assets are valuable because of the people that know them and run them," she said.
BP said the sale is part of an effort to raise $10 billion to raise money to help pay for the oil spill in the Gulf of Mexico, which has cost the company almost $4 billion since the explosion of the Deepwater Horizon and ensuing underwater rupture on April 27.
The company has set aside $20 billion to help pay for the leak and has slashed its dividend. BP said there could be more sales to follow.
"Over the last two months, the board has considered BP's options for generating the cash necessary to meet the obligations likely to arise from the Gulf of Mexico oil spill," BP said in a statement. "The board believes that there are opportunities to divest assets which are strategically more valuable to other parties than they are to BP."
Apache will also buy nearly all of BP's operations in Egypt and the Permian Basin in Texas and New Mexico under the agreement announced Tuesday.
Apache officials said the deal adds about 66 per cent to the company's Canadian production of 340 million cubic feet per day in the second quarter, taking it to 117,000 barrels of oil equivalent per day.
BP's Canadian assets are currently producing 240 million cubic feet of gas and 6,500 barrels of liquids per day, with 214 million barrels oil equivalent of net proved reserves and 1.37 billion barrels of oil equivalent of net resources associated with 525,000 hectares of undeveloped land.
Prior to the deal, Apache was already one of Canada's largest natural gas producers and has grown its Canadian presence through a series of blockbuster acquisitions over the past decade. In 1999, it paid $518 million for Shell Canada's conventional oil and gas unit and followed that up with the $677-million acquisition of Fletcher Challenge Canada in 2001.
BP had recently begun commissioning the $1.4-billion Noel tight gas play in northeast B.C. and Farris said Apache acquires a substantially completed project. He estimated the company will spend about $300 million to put the finishing touches on what was a BP Canada showcase and the fist zero-emissions gas project in Western Canada.
spolczer@theherald.canwest.com
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