Freeport to Acquire Apache Stakes in Gulf for $1.4 Billion

May 08, 2014 4:48 pm ET

(Updates with closing share prices in last paragraph.)

May 8 (Bloomberg) -- Freeport-McMoRan Copper & Gold Inc. found a quick way to spend part of the $3.1 billion it will make from yesterday’s sale of Texas properties, announcing plans today to acquire Apache Corp.’s stakes in deep-water Gulf of Mexico projects for $1.4 billion.

The transaction includes interests in the Lucius and Heidelberg development projects and 11 exploration blocks, the Phoenix-based company said in a statement. Freeport will use proceeds from the sale of Eagle Ford acreage to Encana Corp. to fund the acquisition.

Freeport Chairman Jim Bob Moffett is raising his bet on the Gulf of Mexico after experiencing problems with Davy Jones, a 29,000-foot (8,800-meter) well that has yet to produce any of what the company has said may be trillions of cubic feet of natural gas. It’s also focused on reducing debt after last year’s $9 billion purchase of oil and gas companies Plains Exploration & Production Co. and McMoRan Exploration Co.

“Our recently announced agreement to sell our Eagle Ford assets provides proceeds to repay debt and to acquire high- quality assets” in its focus area in the Gulf, the company said in the statement.

The deal announced today raises Freeport’s stake in the Lucius development, expected to begin oil production this year, to 35 percent from 24 percent. Heidelberg is expected to begin producing by mid-2016.

The projects, both operated by Anadarko Petroleum Corp., are among the deepest wells being drilled in the Gulf. Lucius is estimated to hold the equivalent of 300 million barrels of oil and Heidelberg may have as much as 400 million barrels, according to Anadarko.

Reducing Debt

Freeport, the largest publicly traded copper producer, will use the remaining proceeds of the Eagle Ford sale to reduce debt, which jumped from $3.5 billion to more than $20 billion following its acquisitions last year. Freeport said last month it was targeting significant debt reduction by the end of 2016 and would consider asset sales, joint ventures and “other monetizations” to speed repayment.

Apache, based in Houston, said it was selling to focus on opportunities in waters less than 1,000 feet deep, on the Continental Shelf.

“Discoveries on the shelf have quicker cycle times, require less capital, and provide more options to bring oil and gas to market,” Thomas E. Voytovich, executive vice president and chief operating officer for offshore and international operations for Apache, said in a separate statement today.

Freeport fell 0.4 percent to $33.84 at the close in New York. Apache rose 0.3 percent to $88.03.

--With assistance from Bradley Olson in Houston.