updated 4/19/2006 5:57:22 PM ET 2006-04-19T21:57:22

Apache Corp. said Wednesday it has agreed to purchase 18 Gulf of Mexico oil fields from BP PLC, making the Houston-based oil and gas company the largest leaseholder in the Gulf’s shallow waters.

The deal is worth $1.3 billion, but the company said future development and field abandonment costs would add another $375 million.

Company officials and analysts said the move reflects a longstanding commitment to one of Apache’s core assets — production in the shallow waters of the Gulf’s outer continental shelf.

“At the end of the day, Apache’s objective is to grow production reserves for the long-term benefit of our shareholders, and this opportunity fits well with what we do best,” Apache Chief Executive Steve Farris told analysts.

“We have as much knowledge about these properties as of any that we have every purchased, and with that knowledge, we have great expectations to be exploiting these properties for the next several years.”

Separately, the company said it plans to buy back about 15 million shares of stock worth an estimated $1 billion at current prices.

News of these transactions sent the company’s share price up $3.60, or 5 percent, to close at $73.73 on the New York Stock Exchange.

“The market responding to Apache is tied more to the share repurchase,” said David Heikkinen, analyst with Pickering Energy. “Management and the board using some of its free cash to buy back stocks is a bigger positive indication than the deal with BP.”

Still, the acquisition will boost Apache’s reserves by 27 million barrels of oil and other liquids, and 185 million cubic feet of natural gas. It effectively means BP’s exit from shallow-water production in the Gulf, both companies said.

With the purchase, Gulf’s shallow-water shelf assets will make up 21 percent of Apache’s production, a 3 percent increase; and 15 percent of its worldwide reserves, a 1 percent increase, the company said.

“The company has one of the industry’s best track records in creating shareholder value through acquiring producing properties in negotiated transactions,” wrote Oppenheimer & Co. analyst Fadel Gheit in a research report.

“Over the years (Apache) has successfully executed its strategy by growing its production and reserves efficiently in the areas where it has operating knowledge or where it can leverage its expertise,” he wrote.

The deal is expected to be finalized by the end of the second quarter. Apache has made five major shallow-water acquisitions since 1999.

“Following behind other companies and adding value to older fields is a very important part of who we are,” said Roger Plank, Apache’s chief financial officer. “The Gulf of Mexico lends itself to that.”

Plank added that since 1992, the company has invested more than $5 billion in this area of the Gulf’s shelf and has a 24 percent return.

It’s also an area that sat in the paths of hurricanes Katrina and Rita, whose industry damage to the Gulf still has more than 300,000 barrels a day of oil production offline, according to reports released Wednesday by Minerals Management Services.

“This is a contrarian move; we know that,” Plank said. “Apache is a contrarian company, but we do it with a balanced portfolio.”

BP said the deal allows the London company to direct assets to other projects and development.

“Over time these assets became less and less competitive for BP in its globally competitive portfolio,” said company spokeswoman Ayana McIntosh Lee.

This is the second such deal between the companies since 2003, and one that makes sense for each, Heikkinen said.

“BP didn’t have best staff there and it was not moving needle for BP but it can move needle for Apache,” he said. “It’s going to be accretive to the company’s earnings and cash flow.”

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