Apache will sell LNG stakes in Australia, Canada for $2.75 billon

HOUSTON — Apache Corp. will sell its stakes in two separate liquefied natural gas projects for $2.75 billion, the company said Monday, marking one of its most significant steps yet toward paring back its international portfolio.

Australia-based Woodside Petroleum agreed to purchase the company’s interest in Wheatsone LNG, located in western Australia, and Kitimat LNG, located in western Canada.

Woodside Petroleum will also pay $1 billion to reimburse Apache for money it’s spent on the projects from June 30 to the closing date, expected to be in the first quarter of 2015.

“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,” Apache Chief Executive G. Steven Farris said in a statement.

Investors and analysts had been urging Apache to exit the projects, which had the potential for big profits but were seen as a costly distraction from the company’s focus on U.S. onshore liquids production.

The capital spending requirements associated with the two LNG projects were “a millstone around the neck” of Apache, Iberia Capital Partners said in a note last month.

Stewart Glickman, an analyst wtih S&P Capital IQ, said the challenge with the LNG projects was that even though they had the potential to offer a large cash-flows to the company, it wasn’t necessarily clear when they would deliver.

“In the near-term, they have bigger fish to fry: making sure they’re comofortable with their position onshore,” Glickman said.

The move comes as investors are pushing Apache to focus exclusively on the U.S. In July, activist investor Jana Partners LLC urged the company to focus on drilling domestically and said it should exit Kitimat and Wheatsone in order to increase shareholder value.

Both projects are designed to ship LNG to Asian markets.

In a note to investors Monday morning, analysts at Simmons & Co. called the sale a “big win” for Apache. “Removing LNG further simplifies the company (making it easier to spin off the remaining international assets) and reduces onerous future capital spending obligations,” Simmons & Co. wrote.

Farris announced plans for Apache to shrink its stake in Kitimat LNG, the Canadian project, back in February, telling journalists that it was no longer an investment the company could afford. “In 2014, we need to right-size it for us,” Farris said at the time. “This is not a project Apache can afford in 2014.”

Apache has a 50 percent interest in the Kitimat LNG project, along with Chevron. As part of that agreement, Apache manages development and production of natural gas from British Columbia’s Liard and Horn River basins, which would then feed into the Chevron-operated LNG facility.

Apache acquired its stake in the project in 2010.

In a third quarter conference call with investors, Chevron emphasized that it was still committed to the project despite Apache’s plans to exit. Chevron leaders have not yet made a final investment decision on the project.

Jeff Shellebarger, the company’s president for North America exploration and production, said that wouldn’t happen until it has a contract signed to supply gas from the facility.

Then in the spring, Apache suggested it was considering shrinking its stake in the Australian Wheatstone LNG project as well.

“You’ve got to look at the size of your company, the size of your balance sheet and where you’re going to generate the best returns,” said John Christmann, Apache’s executive vice president and chief operating officer for North America, at the time.

Apache has a 13 percent stake in Wheatstone LNG project, which is also led by Chevron. Other partners in the project include Kuwait Foreign Petroleum Exploration Company, Kyushu Electric Power Company and  PE Wheatstone Pty Ltd, which is part owned by Tokyo Electric Power Company.

Similarly, Apache’s contribution involved supplying natural gas developed from nearby offshore Julimar and Brunello natural gas fields.

On a third quarter conference call, Chevron vice president and chief financial officer Pat Yarrington said the Wheatstone project is 49 percent complete.

What’s next for the company is unclear. Iberia Capital Partners notes that the decline in oil prices could make it more difficult for Apache to sell its remaining international assets, located in the North Sea, Australia and Egypt.