Apache Corporation, a leading oil and gas exploration and production company, has agreed to sell its interest in two LNG projects, Kitimat LNG and Wheatstone LNG along with its associated upstream assets, to Australia’s Woodside Petroleum Limited for $2.75 billion.
The company stated that it will also be reimbursed for its net expenditure in the Wheatstone and Kitimat LNG projects between June 30, 2014, and closing, which is estimated to be approximately $1 billion.
The decision to exit the two LNG projects came as the company faced pressure from activist investor JANA Partners LLC, which wanted Apache to free up cash flow.
The agreement will see Apache sell its equity ownership in its Australian subsidiary, Apache Julimar Pty Ltd, which owns a 13% interest in the Wheatstone LNG project and 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 approximately $3.7 billion. Receipt of proceeds from this transaction will trigger an estimated $650 million cash tax liability, approximately $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.
“Today’s announcement marks the successful completion of one of our primary strategic goals of exiting the Wheatstone and Kitimat LNG projects. Apache recognizes the contribution of our employees who have worked so diligently on these projects since their inception, and we sincerely thank them for their tremendous effort. I would also like to thank Woodside’s CEO and Managing Director, Peter Coleman, and his entire staff for their hard work and professionalism in bringing this transaction to a successful conclusion,” said Mr G. Steven Farris, Apache Chairman, CEO and President.
“I am proud of Apache’s legacy in advancing the Wheatstone and Kitimat LNG projects, and I am confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production. We look forward to the redeployment of the proceeds from this sale, which may be used to reduce debt, repurchase shares and to pursue other opportunities that enhance our asset base and drive profitable production growth.”
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.