U.S. energy firm Apache Corporation (APA) announced that it has entered into an agreement with the Australian oil and gas producer, Woodside Petroleum Limited, to sell its stake in two liquefied natural gas (LNG) projects – Australia’s Wheatstone LNG and Canada’s Kitimat LNG.
Apache had been compelled by activist investor Jana Partners LLC to pull of out these two projects, when the latter revealed in July that it holds a major stake in the company. Following the announcement, shares of Apache increased to an intraday high of $57.46 but fell over 2% from the previous day to close at $55.20.
Apache announced that the deal is valued at $2.75 billion. Apache would also receive about $1 billion for its investments in these projects between the effective date of the deal (Jun 30, 2014) and the closing date (likely to be in the first quarter of 2015) of the transaction. The company is likely to receive net proceeds of about $3.7 billion from the deal.
Apache added that the transaction value would result in cash tax liabilities of about $650 million, most of which are associated with its Overall Foreign Loss account balance. This should result in minimal U.S. tax impact when dealing with cash associated with foreign operations.
Apache will sell its equity interest in Apache Julimar Pty Ltd. The Australian subsidiary of the company holds a 13% stake in the Wheatstone LNG project. It also owns about 65% interest in the WA-49-L block, which is home to the Julimar/Brunello offshore gas fields and the Balnaves oil development.
The transaction also involves the sale of Apache’s 50% stake in the Kitimat LNG project and associated upstream properties in the Horn River and Liard natural gas basins in British Columbia, Canada. The Kitimat LNG project is a joint venture between Apache and the Canadian arm of the U.S. energy giant, Chevron Corp. (CVX).
Post closure of this agreement, Apache will still hold upstream properties off the coast of Western Australia, in the Carnarvon, Exmouth, and Canning basins. The company would also continue to hold a 49% stake in Yara Holdings Nitrates Pty Ltd and a 10% stake in the ammonium nitrate plant.
Apache mentioned that the sale of these LNG projects is a strategic move and it intends to use the proceeds from these transactions to repay debt, repurchase shares and to invest in other promising assets to facilitate growth.
Apache currently holds a Zacks Rank #4 (Sell).
Despite the weakness in the exploration and production industry, there are better-ranked stocks like Atlas Resource Partners, L.P. (ARP) and Cheniere Energy, Inc. (LNG). Both these stocks hold a Zacks Rank #2 (Buy).
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