Apache Corp. has completed the acquisition of producing properties on the Gulf of Mexico outer continental shelf from Shell Exploration and Production Co. for $200 million, subject to normal post-closing adjustments, including preferential rights.
The acquisition includes 26 fields covering 50 blocks and interests in two onshore gas plants. Apache will operate 15 of the fields with 91% of the production.
Apache will book proved reserves of 124.6 bcf of natural gas and 6.6 MMbbl of oil at a cost of $1.22 per Mcf of gas equivalent.
Prior to the transaction, Morgan Stanley paid Shell $300 million to acquire an overriding royalty interest in a portion of the lower-risk reserves to be produced over the next four years. Shell's sale of an overriding royalty interest to Morgan Stanley is commonly known in the industry as a volumetric production payment. Under its terms, Morgan Stanley is to receive a fixed volume of 68.4 bcf equivalent estimated to be produced over the next four years. Apache will not book these reserves.
Overriding royalties are not burdened by production costs and therefore Apache will record a $58 million liability for the future cost to produce and deliver these volumes to Morgan Stanley. These costs will be amortized as the volumes are produced.
Apache acquired the remaining reserves at a low cost per Mcf equivalent and retains all of the potential upside from future exploration and development activities. Apache's acquired production for the last six months of 2003 is expected to average 70.4 MMcf of gas and 4,600 b/d of oil.