ABOUT THE MW ACQUISITION

A lookback at the MW acquisition

The $545-million acquisition doubled the size of the company and firmly established Apache as the industry leader in the "acquire and exploit" strategy.

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Harvard Business School Case Study: MW Petroleum

This case focuses on evaluation and execution of a creative financing structure that allows the buyer and seller to reallocate oil price risk.

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Beating the production curve

MW acquisition

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MW acquisition

The acquisition of MW Petroleum from Amoco in 1991 paved the way for Apache’s acquisition success over the past two decades. The MW acquisition included 272 fields that doubled the size of Apache’s proved reserves, nearly doubled production and broadened our asset base to include long lived oil assets in the Permian Basin and the Gulf Coast. Key fields acquired in this transaction that Apache continues to own today include the Bakke, Hendrick, Smyer, Three Bar and North Monahans.

Summary

	Investment	MMBoe	Cost/Boe
As of 7/1/1991	$546	111.1	$4.91
Initial asset sales	(99)	(22.0)	4.50
Retained assets	$447	89.1	$5.02
Production	(2,214)	(136.5)	16.22
Strategic acquisitions	81	11.7	6.90
Subsequent asset sales	(265)	(43.7)	6.07
Capital investment	777	172.5	4.50
As of 6/30/2011	($1,175)	93.1	(12.62)

Investment returned*	363%
Reserves remaining*		104%

*Based on retained assets

This transaction was a big step for Apache in 1991. Apache and Amoco had different opinions as the direction of future commodity prices and at the time there was not a liquid futures market to hedge the transaction. Apache and Amoco entered into an innovative transaction for the time whereby we created our own “costless collar” to give both sides the comfort to close the transaction. If you are interested in reading more, a Harvard case study was written about the transaction. It's available from the Harvard Business Review Store for $6.95.

After 20 years of owning the MW Petroleum assets, Apache still has over 100% of the reserves it purchased in 1991. Despite additional capital investments and strategic acquisitions adjacent to these assets of $858 million, these assets generated cash flow of $2.2 billion, returning 363% of Apache’s original investment of $546 million in 1991. After two decades, production currently exceeds 10,000 barrels equivalent per day.