Apache receives unsolicited takeover bid

Apache Corp. has received an unsolicited takeover bid, according to Bloomberg. The Houston-based company is worth an estimated $18 billion.

Working with Goldman Sachs Group Inc. to review the takeover bid, Apache has reportedly rejected the initial offer. Company officials have not yet been available for comment.

Bloomberg notes that such a transaction for Apache would be the largest for an independent oil and gas producer in the US this year. With the current oil price decline, Apache’s shares have fallen 54% from their 2014 peak. Apache reported a net loss of about $5.7 million in third-quarter 2015, compared with a net loss of about $1.3 million in 2014. In response to current market conditions, Apache has cut its 2015 capital budget by more than 60% from its 2014 budget.

Analysts from Cowen & Co. commented Monday in The Cowen Insight report that diversified exploration and production (E&P) companies, such as Hess Corp. and Murphy Oil Corp., are also becoming takeover targets.

The report stated, "According to news reports, APA was approached by an unidentified company in the last few weeks. Lower oil prices are forcing companies to reduce their G&A costs/boe. We see diversified companies with strong balance sheets and low relative multiples present attractive targets to larger E&Ps and majors that need to strengthen their balance sheets. APA, HES, and MUR fit this category in our coverage.”

The report indicated that strong balance sheets and cash flow neutrality are attracting interest. “Majors as well as larger E&Ps are looking to strengthen their cash balances while maintaining dividends,” the report said. “We would expect all or mainly stock deals as both buyer and seller prefer stock over cash. The seller wants to preserve upside from future higher crude prices. APA, HES, and MUR have strong balance sheets and have materially under performed in 2015 as investors have focused on E&Ps with longer life onshore portfolios.

Regarding Apache, the analysts stated, “According to news reports, APA was approached by an unidentified company in the last few weeks. Their North Sea and Egyptian assets have never been fully valued by investors. APA's $1.6 bln in cash and low leverage would help a larger company by strengthening their balance sheet and funding a dividend. Our $49/sh price target is based on strip pricing but in scenario analysis increases to $61/sh assuming $65/WTI long-term in a takeout scenario. APA's NAV is $61 assuming $65 oil long-term. We assume 8% discount rate and our model implies a 7.2x 2016 EV/EBITDA multiple versus the Street at 6.3x.”

The report noted that, on Nov. 17, Apache is scheduled to highlight its North Sea operations.


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