Apache Oil Find in Australia May Boost Possible Sale Value

Aug 18, 2014 4:21 pm ET

(Updates share price in sixth paragraph.)

Aug. 18 (Bloomberg) -- Apache Corp., the U.S. oil producer weighing plans to sell international assets after investor pressure, announced the largest discovery in 20 years off the coast of Western Australia.

The Canning Basin may hold as many as 300 million barrels of oil, according to six samples from a well about 110 miles (180 kilometers) north of Port Hedland, the Houston, Texas-based company said today in a statement. Apache holds a 40 percent stake in the area that includes the Phoenix South-1 well. One of its partners, Carnarvon Petroleum Ltd., rose the most in 24 years on the news.

“This discovery should help increase the attractiveness of the international portfolio to potential buyers,” Richard Tullis, an analyst at Capital One Southcoast Inc. in New Orleans, wrote in a note to investors today. The discovery should boost Apache’s value by $2 a share, he said.

Apache last month announced it will sell its stake in two natural gas export projects, including one in Australia, and consider a sale or separation of international assets. The announcement came after Jana Partners LLC, a New York-based hedge fund, disclosed a $1 billion stake in the company and said it was pushing for a split to free up cash for share buybacks and reduce spending risks.

Shareholders are pressuring global energy producers to cut spending and focus on drilling opportunities in the U.S., where oil output has reached the highest level in more than 25 years.

‘Oil Province’

Apache dropped 0.2 percent to $98.50 at the close in New York. Carnarvon, which holds a 20 percent stake in the block, almost tripled to 24 Australian cents in Sydney, the biggest advance since 1990.

“The oil and reservoir quality we have seen point to a commercial discovery,” said Thomas E. Voytovich, Apache executive vice president and chief operating officer for its international business. “If these results are borne out by further appraisal drilling, Phoenix South may represent a new oil province for Australia.”

Oil production in Australia is forecast to rise to an average of 385,000 barrels a day in the year through June 2015, according to the country’s Bureau of Resources and Energy Economics. Total global output may be 95.1 million barrels a day over the same period, it said.

“This is the most significant new oil play in the North West Shelf since the Enfield discovery opened up the Exmouth Basin almost 20 years ago,” Carnarvon Managing Director Adrian Cook said. “The implications on the rest of our acreage are still being assessed, but the potential is extraordinary.”

Not ‘Needle-Mover’

The latest discovery suggests other areas covered by the exploration permit may have the potential for further discoveries, Carnarvon said in a separate statement. JX Nippon Oil & Gas Exploration Corp. and Finder Exploration Pty. each own 20 percent of the block, the Perth-based company said.

For Apache, “it’s not an enormous find,” Leo Mariani, an analyst with RBC Capital Markets LLC in Austin, said today in a phone interview. Explorers generally recover only 20 percent of their oil in place estimates, which would yield about 60 million barrels, he said. “That’s not a huge needle-mover for them.”