Anadarko Petroleum (APC) to Acquire Freeport's Deepwater GoM Assets in $2B Deal
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Anadarko Petroleum Corporation (NYSE: APC) announced it has entered into a definitive agreement to acquire the deepwater Gulf of Mexico assets of Freeport McMoRan Oil & Gas for $2.0 billion. The transaction, effective Aug. 1, 2016, is expected to close prior to year end.
- Doubles Anadarko's ownership in the Lucius development to approximately 49 percent
- Adds approximately 80,000 net barrels of oil equivalent (BOE) per day, more than 80 percent of which is oil
- Expands Anadarko's operated infrastructure throughout the Gulf of Mexico
- Generates an estimated $3.0 billion of incremental Gulf of Mexico free cash flow(1) over the next five years at current strip prices
- Enables accelerated investment in Anadarko's Delaware and DJ basin assets
"This immediately accretive, bolt-on transaction strengthens our industry-leading position in the Gulf of Mexico and is a catalyst for the company's oil-growth objectives, with quality assets being acquired at an attractive price to create significant value," said Anadarko Chairman, President and CEO Al Walker. "We expect these acquired assets to generate substantial free cash flow,(1) enhancing our ability to increase U.S. onshore activity in the Delaware and DJ basins. Our current plans are to add two rigs in each play later this year, and to increase activity further thereafter, with an expectation of more than doubling our production to at least 600,000 BOE per day collectively from these two basins over the next five years. This increased activity would drive a company-wide 10- to 12-percent compounded annual growth rate in oil volumes over the same time horizon in a $50 to $60 oil-price environment, while investing within cash flows. Additionally, the transaction expands Anadarko's infrastructure in the Gulf, adds to our unmatched inventory of low-cost, subsea tieback opportunities, and bolsters optionality with new exploration prospects. The company's Gulf of Mexico position, with the addition of these properties, will have net sales volumes of approximately 155,000 BOE per day, comprised of approximately 85-percent oil."
DOUBLING OWNERSHIP IN LUCIUS
Anadarko's operated Lucius facility in the deepwater Gulf of Mexico continues to achieve strong reservoir performance and facility productivity. As a result of this performance, the company is increasing the estimated ultimate recovery of the field to more than 400 million BOE from the previous 300-plus million BOE. Additionally, gross oil sales volumes through the facility recently surpassed 100,000 barrels of oil per day (BOPD). Under the terms of the transaction, Anadarko will increase its working interest in Lucius to approximately 49 percent from its previous 23.8-percent ownership, enabling the company to further capitalize on additional future value-adding opportunities at Lucius.
ATTRACTIVE ACQUISITION METRICS
The acquisition and development cost of the acquired properties, excluding a total of approximately $300 million of materials inventory and seismic, is approximately $13.50 per BOE for the estimated proved reserves to be acquired. The assets are being acquired at an estimated EBITDAX multiple(1)(2) of 1.5 for the expected sales volumes over the coming 12 months, using the current futures strip price for oil and natural gas. Please see the supplemental information available at www.anadarko.com for additional details on the transaction.
Upon closing, the transaction is expected to add approximately 80,000 BOE per day to Anadarko's sales-volume guidance – more than 80 percent of which is comprised of oil. The company also is expected to increase its 2016 full-year capital guidance, not including the acquisition, to a range of $2.8 to $3.0 billion, primarily reflecting the increased activity in the Delaware and DJ basins.
Jefferies Group LLC and Latham & Watkins LLP are serving as advisors to Anadarko on the acquisition.
CONFERENCE CALL TOMORROW AT 8 A.M. CDT, 9 A.M. EDT
Anadarko will host a conference call tomorrow, Sept. 13, 2016, at 8 a.m. CDT (9 a.m. EDT) to answer questions regarding the transaction. The dial-in number is 877.883.0383 in the United States or 412.902.6506 internationally. The confirmation number is 3595942. For complete instructions on how to participate in the conference call, or to listen to the live audio webcast, please visit www.anadarko.com. A replay of the call will be available on the website for approximately 30 days following the conference call.
(1) Management has presented herein certain forward-looking non-GAAP financial measures, including free cash flow and EBITDAX. These non-GAAP financial measures exclude certain amounts that are included in the corresponding financial measures determined in accordance with GAAP as follows:
- Free cash flow is a non-GAAP financial measure that Anadarko defines as net cash provided by (used in) operating activities before changes in accounts receivable; changes in accounts payable and accrued expenses; other items, net; and certain nonoperating and other excluded items less capital expenditures.
- EBITDAX is a non-GAAP financial measure that Anadarko defines as income (loss) before income taxes; gains (losses) on divestitures, net; exploration expense; depreciation, depletion, and amortization (DD&A); impairments; interest expense; total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives; and certain items not related to the company's normal operations, less net income (loss) attributable to noncontrolling interests.
Due to the forward-looking nature of the above non-GAAP financial measures, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as future impairments and future changes in working capital. Accordingly, Anadarko is unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from these non-GAAP measures in future periods could be significant.
(2) EBITDAX multiple is defined as Enterprise Value (market value + debt – cash and cash equivalents + noncontrolling interests) divided by EBITDAX.
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