Occidental Petroleum Corporation (Oxy) will exit the Williston Basin and will continue to evaluate and minimize its involvement in non-core operations in the Middle East and North Africa.
The company has sold its Bakken assets in the Williston Basin to an undisclosed buyer for $600 million, said President and CEO Steven I. Chazen during the company’s third quarter 2015 conference call Wednesday.
Oxy decided to sell the Bakken assets after deciding the assets couldn’t compete for capital inside the company at any reasonable price scenario, Chazen said.
“We just couldn’t see a situation where we would invest in it, given what we have in the Permian.”
The company’s appraisal and delineation work in the Permian Basin has uncovered numerous sites that are productive at $60/bbl, whereas its Bakken assets have always had a negative, or at best, a neutral cash flow.
Oxy’s economics of scale and deep inventory in the Permian makes it a priority for investment, with Bakken Tier I, II and III assets unable to compete with Oxy’s Permian position. For $600 million, the company could run four to five rigs in the Permian Basin, where it could generate more production than in the Bakken.
“We believe we were given a fair price for the prospects,” said Chazen.
The sale is expected to close in this year’s fourth quarter.
The Williston exit and evaluation of non-core operations are aimed at improving Oxy’s operating cash flow, lowering future capital commitments, lowering its general and administrative costs and achieving better overall financial returns for its remaining asset base, said President and CEO Steven I. Chazen in the company’s Oct. 28 third quarter 2015 results statement.
The company reported core income for the third quarter of 2015 of $24 million, or $0.03 per diluted share. Reported income was a loss of $3.42 per diluted share for the quarter, including $2.6 billion after tax charges, reflecting the sharp decline in the oil and gas futures price curves, as well as projects that management determined it would cease to pursue. Operating cash flow for the quarter was $1 billion, with total cash on the balance sheet at quarter-end of $4.3 billion, Oxy reported.
Oxy saw its third quarter daily production grow 16 percent to 689,000 barrels of oil equivalent (boe) from last year’s 595,000 boe, primarily due to its Permian Basin resources and start-up of its Al Hosn natural gas project in the Middle East.
The increase in Permian Resources oil production was partially offset by lower oil and natural gas production in the Midcontinent and Other regions, of which Williston’s average daily production was down by 4,000 to 17,000 boe compared to the third quarter of 2014. International average daily production increased to 357,000 boe in the third quarter of 2015 from 280,000 boe in the third quarter of 2014. The increase in international production is mainly due to the ramp up in production at Al Hosn, which produced 50,000 boe per day in the third quarter of 2015.
Although oil and natural gas liquids prices declined sequentially in the third quarter, Oxy’s operating cash flow increased to $1 billion from $800 million in the second quarter of 2015. The company also reduced its capital spending another $300 million to $1.2 billion in the third quarter compared to $1.5 billion in the second quarter, the company said in a statement.
The company’s Permian assets continues to represent over 50 percent of its total oil and gas spending, said Chazen.
“We continue to achieve drilling efficiencies and reduce unit operating costs,” Chazen noted. “Wolfcamp well costs in the Delaware Basin are down over 40 percent and our Permian Resources unit operating costs are down 18 percent from a year ago.”
“The actions we have taken to exit non-core assets, improve drilling efficiencies and lower well and unit operating costs provide greater focus in both our U.S. and international oil and gas operations and will strengthen the financial results of the overall enterprise.”
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