Anadarko drops offer to acquire Apache: Update

Adds analysts comments, financial details.

US independent Anadarko has withdrawn a bid to acquire Apache, ending what would have been the first large US shale industry merger since the plunge in oil prices.

An all-stock transaction would have been valued at close to $19bn at today's stock price.

"We recently sent Apache a non-binding offer to acquire the company," Anadarko's chief executive Al Walker said in a statement. Efforts to enter into a confidentiality agreement to proceed with the merger "were summarily rejected and no discussions of substance occurred," he said.

Apache has no comment, spokesperson Castlen Kennedy said.

Since the drop in crude prices over the past year to six-and-a-half-year lows, many companies and investors have been expecting a wave of consolidation across the debt-laden and generally more expensive to drill US shale industry. But deals have not moved forward, in part because of huge interest from private equity investors, betting on a recovery in the market as falling output soaks up the current surplus and as demand improves.

The wide gap between what buyers are willing to pay and what sellers are offering has prompted US shale producers such as EOG Resources to shift to "smaller and more tactical acquisitions" that largely involve buying properties adjacent to their existing core acreages and prepare for a recovery.

"The proposed all-stock transaction, which included a modest premium, would have been highly accretive to Anadarko on a cash flow per-share basis, even before synergies," Walker said. "Further, based public information and Apache's historic financial and operating underperformance, the proposed transaction offered shareholders of both companies numerous value-creation opportunities."

Analysts were less enthusiastic about Anadarko's bid for Apache.

"We do not think the combination of Anadarko and Apache would be a good fit that would create value for their shareholders and our view was reflected by the market reaction," analyst firm Oppenheimer said today. "Many investors believe Anadarko's preemptive action was in self-defense to make it more difficult for a potential buyer to make a bid for Anadarko. Both the companies are expected to lose money at current strip prices."

Apache's net loss in the third quarter widened to $5.66bn in the third quarter from a net loss of $1.33bn a year earlier, largely on account of a $3.7bn write down on the back of the plunge in the market. The independent has sold some of its liquefied natural gas (LNG) assets as part of a drive to shore up its balance sheet and focus on US shale operations.

It sold its 50pc stake in the Kitimat LNG export project in the western Canadian province of British Columbia (BC) to Australian independent Woodside Petroleum for a total proceed of $854mn. It also sold its Australian assets to Woodside, including its 13pc stake in the 8.9mn t/yr Wheatstone LNG export project and a 65pc stake in Balnaves offshore Western Australia for $2.82bn. Both deals closed in April this year.

Its cash flow from operations was $2.72bn in the first nine months of the year versus $6.53bn a year earlier. Its spending of $3.3bn during those months was more than offset with asset sales of $4.33bn. The company took on debt of $2.86bn in those months compared with $941mn a year earlier.

Anadarko posted a net loss of $2.24bn in the third quarter compared with a profit of $1.09bn a year earlier. For the first nine months of the year, the producer had negative cash flow from operations of $2.13bn, but that was largely on account of a one-time charge of $5.2bn on its Tronox-related liabilities. It plugged the gap between cash flows and spending by taking on additional debt of $4.8bn in the first nine months, double the $2.37bn it taken a year earlier.

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