Another Consolidation of U.S. Natural Gas
Consolidation in the U.S. shale gas space has just become more competitive. In a significant move, Apache (NYS: APA) has acquired Cordillera Energy Partners III for $2.85 billion in a cash and stock deal -- a move that indicates that this natural gas producer is right up there with the top players in the industry.
The acquisition comes on the heels of other investments in the U.S. shale gas industry. French giant Total acquired a 25% stake in Chesapeake Energy's (NYS: CHK) Utica shale assets for $700 million, while Repsol invested $1 billion in the Mississippian Basin in a joint venture with SandRidge Energy (NYS: SD) .
Details of the deal
Houston-based Apache's latest buy gives it access to approximately 254,000 net acres and an estimated 71.5 million barrels of oil equivalent in proven reserves. The western Anadarko Basin, where Cordillera operates, is home to the prolific Granite Wash -- a formation consisting of a series of thick, multilayer, liquids-rich sandstones and conglomerates.
Keep in mind, Apache isn't new to this wash. The company already owns 200,000 net acres here. In other words, today's deal saw the company consolidating its mid-continent operations by more than doubling its acreage in the Granite Wash.
Not a surprise
And why not? Apache has been drilling in this area for the last 35 years, where it has met with outstanding success. Expanding here shouldn't really come as a surprise since this fits well with management's strategy to develop proven and producing properties.
The only major difference comes from the fact that Apache has the technology now to dig out the once-difficult resources in the tight-gas formations. Since 2009, the company has drilled 79 horizontal wells, which shows that it wouldn't want to be left behind in the race to have access to more natural gas reserves. The new technology has made it too tempting to resist cheap natural gas. Despite the current lousy market, demand for this commodity should go up in the next few years, and this should see natural gas prices moving up.
Apache expects this acquisition to contribute to its cash flows this year. ExxonMobil (NYS: XOM) is now enjoying the fruits of its acquisition of XTO Energy in 2009. Natural gas production in 2011 is estimated to have grown almost 15% over the previous year, which has reflected in the company's growing U.S. upstream operations.
Foolish bottom line
Foolish colleague Aimee Duffy has summed up the deals succinctly: The landscape of the U.S. domestic energy development will likely change many times over in the coming years due, in part, to developing technology and burgeoning government regulations.
Here's where I'm putting my money. The entire segment looks exciting. Natural gas is dirt cheap right now and smart companies are taking advantage of this. But don't expect it to remain so in the next few years. Once prices move up, the value of these properties will sky-rocket. These deals are just examples of buying cheap.
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At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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