Apache Corp. (NYSE, Nasdaq: APA) has agreed to sell its interest in two LNG projects, Wheatstone LNG and Kitimat LNG, along with accompanying upstream oil and gas reserves, to Woodside Petroleum Ltd. (ASX: WPL) for a purchase price of $2.75 billion. Apache will also be reimbursed for its net expenditure in the Wheatstone and Kitimat LNG projects between June 30 and closing, which is estimated to be $1 billion.
Under the terms of the agreement, Apache will sell its equity ownership in its Australian subsidiary, Apache Julimar Pty Ltd, which owns a 13% interest in the Wheatstone LNG project, along with a 65% interest in the WA-49-L block, which includes the Julimar/Brunello offshore gas fields and the Balnaves oil development. The transaction, which has an effective date of June 30, 2014, will also include Apache's 50% interest in the Kitimat LNG project and related upstream acreage in the Horn River and Liard natural gas basins in British Columbia, Canada.
Based on current estimates, Apache's net proceeds upon closing are expected to be $3.7 billion. Receipt of proceeds from this transaction will trigger an estimated $650 million cash tax liability, $600 million of which is associated with the income tax due on Apache's Overall Foreign Loss account balance. Upon incurring this income tax liability, Apache estimates that it will have the flexibility to repatriate cash generated from foreign operations and/or future international strategic transactions with minimal US cash tax impact.
Upon completion of the transaction, Apache will continue to hold upstream acreage offshore Western Australia in the Carnarvon, Exmouth, and Canning basins, along with related hydrocarbon reserves and production. Apache will also retain its 49% ownership interest in Yara Holdings Nitrates Pty Ltd and a 10% interest in the related ammonium nitrate plant.
The transaction is expected to close in the first quarter of 2015 and is subject to necessary government and regulatory approvals and customary post-closing adjustments. The sale of the Kitimat LNG project is subject to certain operator consents.
"APA exits the LNG business in an efficient manner selling both Kitimat and Wheatstone to Woodside in a single transaction. The price received by APA comps well vs. Shell’s $1.1B Wheatstone sale earlier this year and Chevron’s ~$1.3B Kitimat purchase from EOG and ECA in 2012 for a 50% stake. APA has been very transparent about its desire to sell both projects and refocus on its efforts on NAM resource plays, so this sale comes as no surprise and should likely be received well in light of an environment with a tough commodity backdrop," noted analysts with Global Hunter Securities following the news.