Deal Of The Month: ConocoPhillips Cuts Gas Profile in $3B San Juan Sale
ConocoPhillips’ sale of its San Juan Basin gas assets to a Hilcorp Energy affiliate is a smart move, say analysts who recently reduced their forecast for U.S. gas prices.
ConcoPhillips (NYSE: COP) announced in mid-April its decision to divest roughly 1.3 million acres in northern New Mexico and southern Colorado assets for $2.7 billion, plus up to $300 million in contingency payments. The net book value for the assets was $5.9 billion at the end of 2016, according to Barclays’ analysts.
The selling price is consistent with analysts’ sale projections. Barclays had forecast a price on San Juan between $2.5 and $3.5 billion, or between $20,000 and $30,000 per barrel of oil equivalent (boe).
Barclays expects COP to close at least one more transaction this year, probably the company’s North Texas gas assets in the Panhandle and Barnett Shale, which produced 33 million barrels of oil equivalent per day (boepd) in 2016.
“Bearing in mind our recently reduced U.S. gas price forecast of $2.75 per Mcf, our perspective is that anything that makes the asset base less gassy is ultimately a good thing,” Raymond James analysts said.
At this level of activity, the analysts said COP should meet its buyback and debt reduction targets. And at $50 to $55 per barrel Brent prices through 2019, COP may offer a cash return close to 7 percent with production growth up to 3 percent for the next three years.
“This alternative value proposition should compete quite attractively versus other mega majors,” Barclays said in an April 13 equity research report.
In conjunction with COP’s March sale of Canadian oil sands assets, the company is on track to divest more than $16 billion in assets this year, said Ryan Lance, COP CEO, in a statement.
“These transactions will materially reduce our exposure to North American gas and achieve an immediate step change improvement in our balance sheet and cash margins, while accelerating our return of cash to shareholders,” Lance said.
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