Apache to Buy Burrup Stake - Analyst Blog

Apache Corporation ( APA ) announced its plans to take over 65% stake in the Burrup Holdings Limited for an estimated amount of A$560 million or $560 million. The deal is expected to be closed in late January or early February 2012.

The remaining 35% interest in Burrup Holdings will be controlled by Norway-based Yara International.

Apache, along with a consortium including Burrup Holdings Limited, intends to develop a technical ammonium nitrate ( TAN ) plant in the Burrup Peninsula region.

Located in Western Australia, Burrup facility is one of the world's largest ammonia production plants, with a production capacity of 760,000 metric tons annually. The unit produces almost 6% of the world's total tradable ammonia.

After a year-long dispute over the ownership of the Burrup plant, Apache decided to take the call in order to stabilize the project. This acquisition will also provide the company an economically strong market for natural gas production in Western Australia, in the long run. Apache plans to operate the plant through companies having in-depth experience in this sector.

Apache is also in talks with Australia-based global supplier of mining explosives - Orica - for the sale of most of its interest in the TAN project.

Houston, Texas-based Apache is one of the world's leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

We appreciate Apache's strategy of expansion through the acquisition and development of existing reserves. Long-term production growth visibility improved significantly following the asset acquisition of BP plc ( BP ) and purchase of a portion of Devon Energy 's ( DVN ) Gulf of Mexico assets. These new acreage positions complement the company's diversified asset base.

We also remain optimistic about Apache's international operations, and the commitment to build an asset base in Australia and Egypt over the last few years. We see meaningful growth in free cash flow over the coming years, stemming from project start-ups in these countries.

However, we see limited upside potential for Apache, considering its sensitivity to gas/oil price volatility, drilling disturbances, geo-political risks and project timing delays. As such, we expect Apache to perform in line with the broader market and, therefore, maintain our Neutral recommendation for the long term. Apache currently retains a Zacks #3 Rank (short-term Hold rating).

APACHE CORP ( APA ): Free Stock Analysis Report

BP PLC ( BP ): Free Stock Analysis Report

DEVON ENERGY ( DVN ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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