Occidental Petroleum Corp. announced Friday that it has executed an agreement with a subsidiary of China Petrochemical Corp. (Sinopec) to sell Occidental's Argentine oil and gas operations for after-tax proceeds of approximately $2.5 billion.
Occidental also announced that it had executed agreements to purchase oil and gas properties in South Texas and North Dakota for about $3.2 billion. Additionally, Occidental announced that it has signed an agreement to increase its General Partner (GP) ownership in Plains All-American (NYSE:PAA) to approximately 35 percent; and it has agreed to acquire the remaining 50 percent joint venture interest in the Elk Hills Power Plant.
Occidental expects all of these transactions to be completed no later than the end of the first quarter of 2011, subject to normal regulatory approvals.
"These transactions will be immediately accretive to our earnings, return on capital employed and cash flow after capital. With these new acquisitions and without Argentina in our asset mix, achieving both our short-term and long-term average annual production growth outlook of 5-8 percent will be more certain and will generate higher returns," said Ray R. Irani, Chairman and Chief Executive Officer of Occidental Petroleum Corporation.
"These properties, combined with acquisitions completed earlier this year, will more than replace the production from the sale of Argentina. We expect that each of these new acquisitions together with future drilling, potential exploration and consolidation opportunities in these areas, over time, will grow to over 50,000 barrels of oil equivalent per day (BOEPD)."
"In light of our outlook for improved free cash flow, the Board has agreed to increase our common dividend rate by 21 percent from 38 cents per quarter to 46 cents per quarter effective with the April 15th payment. The formal dividend declaration will be made by the Board of Directors in February," said Irani.
The South Texas assets will be purchased from Shell for about $1.8 billion and currently produce approximately 200 million cubic feet per day of gas equivalent. Shell has owned and operated the properties for many years. The assets will be 100 percent operated by Occidental and have an excellent inventory of drilling opportunities.
Occidental is purchasing, from a private seller, approximately 180,000 net contiguous acres in North Dakota which produce from the Bakken formation and are prospective in the Three Forks formation. The purchase price is approximately $1.4 billion. The assets currently produce approximately 5,500 BOEPD and Occidental's net risked reserve exposure is in excess of 250 million barrels of oil equivalent. Combined with Occidental's other interests in the Williston Basin, Occidental will have an interest in over 200,000 net acres and over 6,000 BOEPD of production. Occidental expects to grow production in the Williston Basin to at least 30,000 BOEPD over the next five years.
Occidental is purchasing an incremental 13 percent ownership in PAA's general partner, bringing its total ownership in the GP to approximately 35 percent. PAA's operations compliment Occidental's domestic oil and gas operations. Plains is one of the largest operators of oil pipelines in North America with operations in Texas, California, and North Dakota, among other areas.
In addition, Occidental is purchasing Sempra Generation's 50 percent interest in the Elk Hills Power Plant, bringing Oxy's ownership to 100 percent. This will improve efficiency and lower operating costs at Oxy's Elk Hills business unit.
Occidental's Argentine assets being divested currently produce approximately 44,000 BOEPD net to Oxy. When the transaction closes, Occidental expects to report a gain on the sale.
The company will finance the acquisitions from both existing balance sheet cash and debt financing.
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