Apache Corp., Houston, (NYSE, Nasdaq: APA) plans to acquire BP's (NYSE: BP) remaining producing properties on the Outer Continental Shelf of the Gulf of Mexico for US$1.3 billion in cash. Apache plans to finance the transaction by issuing commercial paper. It will acquire 18 producing fields, 11 operational, covering 92 blocks with estimated proved reserves of 27 million bbl. of liquids and 185 billion cu. ft. of gas. Apache has identified 50 drilling locations on the properties, and it estimated an additional 4 million bbl. of liquids and 26 billion cu. ft. of gas in probable and possible reserves. Some of the fields are subject to exercise of preferential rights to purchase by other interest-owners. Closing is expected by the end of this month. The acquired assets are expected to produce an average of 7,100 bbl. of oil, 1,500 bbl. of gas liquids and 108 million cu. ft. of gas per day. Production and cash flow are expected to rise in 2007 as fields damaged in the 2005 hurricane season are brought back online. G. Steven Farris, Apache president and chief executive, says, "We want to thank the people at BP for the opportunity to work with them on this transaction. This is our third transaction with BP; in 2003, we acquired properties in the North Sea and the Gulf of Mexico." Raymond Plank, Apache founder and chairman, says, "This transaction is a good fit for the long-term strategies of both BP and Apache. Though we are much smaller than BP, we share its desire to focus capital and talented professionals on assets that will provide the maximum return for shareholders." After the transaction, Apache will have shelf assets that comprise 21% of its company-wide production, up from 18%, and 15% of worldwide reserves, up from 14%. This is the latest of three acquisitions that are expected to add 14,700 bbl. of liquids and 142 million cu. ft. of gas to Apache's average worldwide daily production based on the expected closing dates. The added production is equal to 9.3% of Apache's 2005 average daily output. Goldman, Sachs & Co. was financial advisor to Apache. Separately, Apache announced a $1-billion share buyback program. Lloyd Byrne, an analyst with Morgan Stanley, says, "Given returns on invested capital, two strong years of production visibility, recent relative performance and current valuation multiples, we like Apache's risk-reward today." He raised his 12-month price target from $88 to $90 per Apache share. "[Also,] we've argued that one of Apache's most under-utilized assets is its balance sheet. As such, we believe the [planned share] buyback makes solid economic sense." Given its free-cash-flow outlook and net debt positioning, Byrne says Apache management is well positioned to continue to execute within its historic business model, while opportunistically returning cash to shareholders through the repurchase of shares. Standard & Poor's Ratings Services affirmed its A- credit rating on Apache. "We expect resulting financial leverage, although significantly increased, to be acceptable based on the strength of the company's business-risk profile and the expectation that credit measures will remain moderate under midcycle commodity-price assumptions," says S&P credit analyst Ben Tsocanos. "Key to the ratings is Apache's ability to achieve consistent growth through a combination of internal investment and a steady pace of relatively sizable acquisitions at reasonable costs," Tsocanos says. In another deal, Apache has acquired the Argentine operations of Pioneer Natural Resources Co., Dallas, (NYSE: PXD) for approximately $675 million in cash. The assets are in the Neuquen, San Jorge and Austral basins of Argentina and include estimated net proved and probable reserves of 101 million BOE, including proved reserves of 22 million bbl. of liquid hydrocarbons and 297 billion cu. ft. of gas. Net current production is approximately 9,000 bbl. of oil and 125 million cu. ft. of gas per day. The assets include five operated and three nonoperated gas-processing plants and 112 miles of operated pipelines in the Neuquen Basin. Also included are 2,200 square miles of recently acquired 3-D seismic data. Pioneer plans to use these proceeds, along with those from a recent Gulf divestment, to fund a portion of 2006 capex, reduce short-term debt, and repurchase shares under its $1-billion share-repurchase program. "This transaction provides a platform for growth in Argentina," Apache's Farris says. "The country has sizable oil and gas reserves, favorable geology, a skilled workforce, an improving economy and increasing energy demand, all of which add up to a good place for Apache to conduct business."