Apache Dives Even Deeper

On Monday, Apache (NYSE: APA) picked up more than $1 billion worth of Gulf of Mexico shelf properties from Devon Energy (NYSE: DVN). I cast that as a typically contrarian move for Apache, as most of the other independents don't seem interested in shallow-water exploration and development.

Well, today, Apache made a more conventional move. The company joined the deepwater party by picking up Mariner Energy (NYSE: ME) for around $3.9 billion, including debt.

Sure, Mariner also has Gulf of Mexico shelf assets, as well as a position in the Permian Basin that's a bit larger than what Arena Resources brought to the table in its $1.6 billion merger with SandRidge Energy (NYSE: SD) earlier this month. (Hmm, think SandRidge overpaid a smidge?) At the end of the day, though, this deal is about diving into the deepwater Gulf of Mexico.

Mariner's deepwater reserves are modest at 27 million barrels, but Apache points to unbooked potential of 1.47 billion barrels. That's the game right there -- unlocking this vast resource potential through the drill bit. That takes a lot of money, which Apache is in a much better position to provide than a standalone Mariner. The latter company was punching far above its weight with a portfolio of 36 deepwater projects. That puts the company fourth, just behind Anadarko Petroleum (NYSE: APC). To find another midsize independent in the deepwater ranks, you have to look way down the list, to Newfield Exploration (NYSE: NFX) -- no pipsqueak at a roughly $9 billion enterprise value.

The deepwater is a big boy's game. Even Devon found itself in too deep and passed the majority of its portfolio to BP (NYSE: BP) earlier this year. Mariner looks like an obvious takeout, at least in hindsight.

As for the price tag, the big premium has come as a surprise to some. Not the analysts at JPMorgan Chase, however. That company absolutely nailed it with its work on Mariner, moving its price target to $27 earlier this year, when shares traded hands at just $15. Don't sleep on these guys. I think they're the best on the Street when it comes to the independent exploration and production companies.