Apache sheds foreign LNG projects
Apache Corp. took a major stride away from overseas energy activities Monday as it announced the sale of its stakes in two liquefied natural gas projects for $2.75 billion.
The company had signaled for months that it hoped to shrink its stake in the projects as it faced renewed pressure from investors to scale back its international work and continue to focus on liquids production closer to home.
“In the near term, it helps Apache,” said Brian Youngberg, an analyst at Edward Jones. “They needed to simplify their portfolio and try to be a little more focused.”
Australia-based Woodside Petroleum agreed to purchase the company’s stake in Wheatstone LNG in western Australia and Kitimat LNG in western Canada.
Woodside Petroleum will also pay $1 billion to reimburse Apache for money spent on the projects from June 30 to the closing date, expected to be in the first quarter of 2015.
“I am proud of Apache’s legacy in advancing the Wheatstone and Kitimat LNG projects, and I am confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production,” Apache Chief Executive G. Steven Farris said in a statement.
Apache’s international portfolio will be significantly smaller as a result of the transactions. The company has for months openly discussed the possibility of exiting the projects.
It retains international assets in the North Sea, Australia, Egypt and Canada, but company officials said in a presentation to analysts last month that Apache is evaluating selling or spinning off more of its international businesses.
In a note to investors Monday morning, analysts at Simmons & Co. called the LNG sale a “big win” for Apache because it simplifies Apache’s portfolio and could make it less complicated for the Houston-based exploration and production company to sell remaining international assets.
The spending requirements associated with the two LNG projects were “a millstone around the neck” of Apache, Iberia Capital Partners said in a note to investors last month.
Since late 2012, the company has announced asset sales of more than $10 billion as it unloaded all or parts of its stakes in projects in the Gulf of Mexico, Canada, Argentina and Egypt, among other places.
Investors had been pushing Apache to pull out of the two LNG projects, arguing that while they had big profit potential, they were a costly distraction from the company’s focus on U.S. onshore liquids production.
In July, activist investor Jana Partners LLC urged the company to exit Kitimat and Wheatstone, both designed to ship LNG to Asian markets.
Youngberg said Apache probably is marketing its remaining international assets and gauging the prices they might bring.
But the company may find buyers aren’t willing to pay as much given the months-long drop in crude oil prices. “They have to decide whether it’s worth selling in a low-price environment,” Youngberg said.
One asset Apache isn’t likely to sell any time soon is its remaining Egypt business, which generates cash that Apache can use in U.S. operations, Youngberg said.
Farris announced plans for Apache to shrink its stake in Kitimat LNG, the Canadian project, back in February.
“In 2014, we need to right-size it for us,” Farris told journalists. “This is not a project Apache can afford in 2014.”
Then in the spring, Apache suggested it was considering shrinking its stake in the Australian Wheatstone LNG project as well.
“You’ve got to look at the size of your company, the size of your balance sheet and where you’re going to generate the best returns,” John Christmann, Apache’s executive vice president and chief operating officer for North America, said then.
Apache and Chevron have50 percent interests in the Kitimat LNG project. Under their agreement, Apache would manage development and production of natural gas from British Columbia’s Liard and Horn River basins, which would then feed into the Chevron-operated LNG facility.
In a conference call with investors earlier this fall to discuss third-quarter earnings, Chevron officials said the company is still committed to the project, but said they have not made a final investment decision on it.
Jeff Shellebarger, Chevron’s president for North America exploration and production, said on the call that won’t happen until it has a contract signed to supply gas from the facility.
Youngberg said Apache essentially may be trying to cut its losses on Kitimat.
“There’s a question of whether Kitimat would ever get off the ground anyway,” Youngberg said.
Apache has a 13 percent stake in the Wheatstone LNG project, which is also led by Chevron. Other partners in the project are Kuwait Foreign Petroleum Exploration Company, Kyushu Electric Power Company and a consortium of Japanese companies.
Apache’s contribution involves supplying natural gas developed from nearby the offshore Julimar and Brunello natural gas fields. A Chevron spokesman said the Wheatstone project is slated to be complete in 2016.
Stewart Glickman, an analyst with S&P Capital IQ, said the challenge with the LNG projects was that they require major up-front investment that Apache no longer is willing to pay. “In the near-term, they have bigger fish to fry: making sure they’re comfortable with their position onshore,” Glickman said.