Apache's latest acquisitions to significantly rise year-end reserves

Apache said that its two latest acquisitions will double Apache's year-end 2000 Egyptian proved reserves of 68 mm boe and add proved reserves of 119 mm boe (713 bn cf of gas equivalent) in Canada. Apache paid $ 410 mm for Repsol's interest in Egypt and $ 627 mm for Fletcher Challenge Energy subsidiaries with properties in Canada and Argentina.
"Doing a quick math calculation, the combined cost per barrel of the two acquisitions is $ 5.56," said Apache President and COO G. Steven Farris, speaking at the Howard, Weil, Labouisse, Friedrichs Energy Conference in New Orleans. "However, when you factor in the discounted value of the Egyptian excess cost recovery pool, we believe it brings the cost of the Repsol acquisition down to $ 3.35 per boe."

In Egypt, 40 % of total production revenues goes to a cost recovery pool, paid in pre-tax dollars, from which foreign contractors may recoup current operations expenditures as well as capital expenditures on a dollar-for-dollar basis, Farris explained. "Assuming a $ 20-per-barrel oil price over the life of the concession, there is an additional $ 550 mm of undiscounted excess cost recovery available for additional investments. It's like having a drilling fund of over a half a billion dollars."
When cost recovery is factored into the equation, Farris said, the apparent $ 6.03 per-barrel cost of the Egyptian reserves acquired drops to $ 3.35 per barrel. "Most investors don't realize the leverage the cost recovery mechanism gives us in our Egyptian operations," Farris said.

The Repsol acquisition increases Apache's interest in the prolific Khalda/Khalda Offset Concession to 90 % and the company becomes operator. It is the single-most valuable property in Apache's worldwide portfolio. The acquisition also increases the company's interest in the onshore and shallow water portions of the prospective West Mediterranean Concession to 100 % and adds interests in several other Western Desert concessions and blocks (Umbarka, South Umbarka, Ras Kanayes, N.E. AbuGharadig and Ras El Hekma), all to be operated by Apache.
"In 1996, our first year of production in Egypt, Apache had $ 65 mm in revenues," Farris said. "In 2000, our Egyptian operations generated revenues of $ 361 mm and after tax net income of $ 129 mm."

Through the Fletcher Challenge transaction, Apache acquires properties in Alberta, British Columbia and Saskatchewan with a reserve life of nine years. Shell Overseas Holdings was Apache's partner in the Fletcher Challenge transaction, acquiring subsidiaries with assets in New Zealand and Brunei.
Separately, Shell is purchasing 1.64 mm shares of restricted Apache common stock for $ 100 mm, the proceeds of which are being used to fund a portion of Apache's acquisition costs. The transaction will boost Apache's Canadian proved reserves to approximately 2.1 tcf of gas equivalent.
In addition to the Canadian properties, the Fletcher Challenge transaction provides Apache with a foothold in Argentina -- a 25 % interest in the 341,000-acre CNQ-16/A Concession in the Neuquen Basin. During 2000, two discovery wells were tested at 19 mm cfpd and 18 mm cfpd, respectively. The field is being developed and first production is expected in early 2002.

Apache is a large oil and gas independent with operations in the United States, Canada, Egypt, Western Australia, Poland and China.