Occidental's North Dakota Deal Mixed Omen For Pending Oilfield Deals

Occidental's North Dakota Deal Mixed Omen For Pending Oilfield Deals
Occidental Petroleum's move to sell its North Dakota acreage removes a logjam that had impeded US oilfield deals for much of the year, although the deal signals a buyers' market.


WILLISTON, N.D., Oct 16 (Reuters) – Occidental Petroleum Corp's move to sell its North Dakota acreage likely removes a logjam that had impeded U.S. oilfield deals for much of the year, though the deal's price sets an unusually low bar for future deals and gives buyers the advantage over sellers.

Oxy is selling all of its roughly 300,000 acres in North Dakota's Bakken shale formation to a private equity fund in a deal valued around $500 million, sources familiar with the matter told Reuters.

The price is roughly one-sixth, though, of what Wall Street had expected Oxy to fetch for the assets as recently as last year.

Houston-based Oxy did not sell the North Dakota assets out of distress; indeed, it has $2.8 billion in cash in the bank. Rather, the deal removes an operational distraction from managers focused elsewhere and helps the company achieve its goal of being cash-flow neutral.

Still, for ConocoPhillips, Whiting Petroleum Corp , Oasis Petroleum Inc and other oil companies pursuing pipeline or oil acreage sales, Oxy has set the bar low.

"The (Oxy) sale price shows the stark reality that operators trying to sell non-core acreage face in a sub-$50 per barrel oil world face," said Tim Rezvan, an oil industry analyst at Sterne Agee CRT.

Conoco, one of the largest American oil producers, is trying to sell oil and gas properties in the Rockies, East Texas, South Texas and Northern Louisiana, with expectations for the total value of all the deals eclipsing $2 billion.

As with Oxy, the deals would not be crucial to Conoco's survival, but would give the company cash to weather the low oil price storm and focus more on core operations.

Yet with Oxy accepting far lower than Wall Street expected for its non-core acreage in North Dakota, it remains to be seen if Conoco can hit that target.

Whiting and Oasis are currently selling so-called midstream assets mostly comprised of pipelines and saltwater disposal units.

But the assets, which generate steady streams of cash, might now go for far less than executives want, which would be potentially harmful for these companies.

In the case of Oasis, which operates only in North Dakota, the sale of all or part of its saltwater disposal business is seen as vital to keeping core oil operations online. Earlier this month Wall Street banks cut Oasis' credit line by roughly $170 million, the largest reported reduction this autumn of an oil producer's access to debt markets in the wake of plunging crude prices.

That cut stressed the company's balance sheet and put further onus on a good price for the saltwater disposal assets, which at one time was estimated to be worth as much as $880 million.

(Additional reporting by Anna Driver in Houston; Editing by Bernard Orr)

Copyright 2016 Thomson Reuters. Click for Restrictions.


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Philippe | Oct. 17, 2015
All new reserves, what is called “Elephant” are far between and expensive to developed. More times than not, these “Elephants” are found in areas which impose a JV of some sort. The E&P companies in many cases are the ones that put up the development capital up front. The partner, most likely a government own company, takes a healthy percentage after the development capital is paid off. This was the case until now, when the crude oil price was $80/$100. It was possible to pay off a 2 billion capital in 5 years. This has become impossible at $50 per barrel. I believe major E&Ps will be less attracted in these kinds of investments. Would it be acceptable to barrow large amount of capital not knowing the potential returns or carrying a loan for 10, 20 years or more? This is the new challenge that major E&P are facing. On the other hand, E&Ps investing in a shale play do not face a large up front capital investment. Drilling a fracked well does not take long, 2 month max. Right away these wells generate IP production. The cost is in the gathering pipe network that can be subcontracted to a third party. The capital can be IPOed through a MLP. The production can follow the price of crude by drilling more wells as the price goes up. New drilling can balance production between IP and EUR production as well. Therefore the capital can be invested over time as the prices fluctuate. The problem we face presently is the E&P that invested large amount of capital while the fracking technology was in it infancy. These E&P are burden with large loans warranted by the $100 WTI price . We are going to see many mergers and acquisitions. Those left will be very profitable.

R.J. Spoley | Oct. 16, 2015
There are a bazillion articles/stories of E&P companies as well as a host of service companies being creative in improving efficiency in whatever they do. woppee. All exploration efforts will always lose money. Theyre designed to do that. Money in this business is made in the development phase of production. Success ratios in exploration are usually in the 1 in 10 area and considered to not be aggressive enough if the ratio is 1 in 5. At that rate all E&P companies would be out of business in short order. The money is made by finding good quality, long lived, very commercial RESERVES in the development area. Success ratios there are expected to be in excess of 85% or better. This is why the horizontal, resource, fracing, dewatering thing showed up. No dry holes . A 100% batting average with new glamorous technology to move it along. Only one thing missing. Most of these wells are only commercial under high price scenarios, and the hell with the reserve portion of the equation. Now lets talk about efficiency. The service companies are not the problem. The problem is in the quality of the development portion of the equation. None of these plays have long lived, high quality, high volumes of commercial reserves at low prices. Management has lost sight of the long term picture and is just looking at short term cash flow results. Who do we see about that?

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