Analysis: Wall St wary of Apache purchase of BP assets

By Anna Driver and Eric Onstad

HOUSTON/LONDON (BestGrowthStock) – Shares of Apache Corp fell on Monday after the oil and gas producer was reported to be considering buying BP Plc assets in Alaska as Wall Street worried such a deal could carry a hefty price tag for the smaller company.

BP is in talks with Apache and other companies on the potential sale of $10 billion of assets, including its stake in Alaska’s Prudhoe Bay field, according to a source familiar with the situation and news reports.

Apache shares traded at $84.62 per share near midday, down 3.7 percent.

Apache has declined to comment on the reports, but analysts, who point to its previous deals with BP, including the 2003 buy of the Forties field in the North Sea, say the acquisition of Prudhoe Bay would benefit the Houston company.

“It’s unfortunate that the stock is falling strictly on rumors and what could be an opportunistic deal for Apache,” Bill Fitzpatrick, equity analyst at Optique Capital Management in Milwaukee.

“My gut feeling is that we are still in a tenuous economic recovery. If you are the buyer, you are taking on more debt, and more risk. The market seems to be punishing companies in that position,” he added.

Prudhoe Bay remains the largest oilfield in North America and is one of the 20 largest fields ever discovered. The field, on the northern coast of Alaska, is operated by BP, which owns a 26 percent stake. Exxon Mobil and ConocoPhillips each own 36 percent, and Chevron Corp owns 2 percent.

Production at the field has been declining, but BP’s stake yielded 69,000 barrels per day in 2009 and contributed more than one-third of BP’s output from Alaska’s North Slope.

BP is seeking to bolster its financial position through asset sales as it battles to shut off the oilwell flow from the April 20 disaster in the Gulf of Mexico that has already cost it more $3.5 billion. Its total liabilities are expected to run into the tens of billions of dollars.

OPPORTUNITY AND RISK

For Apache, a deal would boost its output, which averaged 586,000 barrels of oil equivalent per day in the first quarter. But the company is also in the midst of closing the $2.7 billion acquisition of Mariner Energy after last month spending $1.05 billion to buy Devon Energy’s Gulf of Mexico assets.

“They’ve got the capability to manage the asset, but it might be too big a chunk just for Apache on its own. That makes me think it’s either going to do it as a partner deal or only have a part share in the Alaskan asset base,” said analyst Jason Kenney at ING in Edinburgh.

Apache has a market value of about $30 billion, and its debt to market capitalization hovered below 25 percent last year. That should allow the company to access the capital markets to pay for an acquisition.

“They would probably issue a combination of stock and debt, but more stock than debt because they want their balance sheet to remain clean,” said Fadel Gheit, an analyst at Oppenheimer & Co.

The price of Apache Corp’s 6.250 percent notes due in 2012 dipped to 107.93 cents on the dollar on Monday afternoon, from 108.56 cents when these last traded on July 6, according to MarketAxess.

For BP, whose London-listed shares rallied more than 9 percent on Monday on the sale reports as well hopes the company would soon put in place new equipment to contain more of the oil spilling from its Gulf of Mexico well, the benefits of a deal would not come without risk.

Analysis: Wall St wary of Apache purchase of BP assets