Conoco Phillips Sells San Juan Assets To Hilcorp For $3 Billion

ConocoPhillips (NYSE: COP) agreed April 13 to the sale of its dry gas interests in the San Juan Basin to an affiliate of Hilcorp Energy Co. for up to $3 billion.

The deal comes roughly two weeks after ConocoPhillips’ $13.3 billion sale of Canadian oil sands assets to Cenovus Energy Inc. (NYSE: CVE). In total, ConocoPhillips has announced more than $16 billion of assets sales so far in 2017. Included in its deal price with Hilcorp are incentive payments of about $300 million.

In November, ConocoPhillips said it planned to divest assets of $5 billion to $8 billion to delever and core up its asset base by 2018, analysts said. With its two agreements, the company is on track to double its goal roughly four months into 2017.

The San Juan sell has previously been previously discussed by management said Scott Hanold, an analyst with RBC Capital Markets. The deal price is at the high range of RBC’s estimates.

“COP has now divested over $16 billion is assets this year, well above its three-year goal in under one year,” Hanold said. “We think the company will continue to maintain its priorities of dividend growth, debt reduction, and share repurchases. We expect the stock to react favorably.”

Immediately after ConocoPhillips said it would divest in Canada, for instance, the oil sands sale jumpstarted company stock, lifting it by nearly 9% and increasing the company’s value by roughly $5 billion.

“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,” Ryan Lance, ConocoPhillips’ chairman and CEO, said in a statement. “Our company will be more focused, far stronger financially, and well positioned to execute our disciplined, returns-focused value proposition.”

ConocoPhillips’ San Juan Basin assets cover about 1.3 million acres in New Mexico and Colorado. Full-year 2016 production associated with the assets was 124,000 barrels of oil equivalent per day (boe/d), of which about 80% was natural gas. Cash provided by operating activities for 2016 was about $200 million. Year-end 2016 proved reserves were 600 MMboe.

Hilcorp said it estimates 2017 production from the San Juan assets could reach about 115,000 boe/d, consisting of about 80% natural gas and 20% NGL.

“The San Juan Basin acquisition fits the profile of the established, conventional assets [that] Hilcorp typically aims to secure and enhance,” Jason Rebrook, president and chief development officer of Hilcorp, said in a statement. “In the last five years alone, we have invested heavily in our properties, increasing both reserves and production.”

According to ConocoPhillips, the net book value of its San Juan assets was roughly $5.9 billion as of year-end 2016, which includes about $2.8 billion of step-up basis associated with the Burlington acquisition in 2006.

Sale proceeds are comprised of $2.7 billion in cash and contingent payments of up to $300 million spread over six years. The cash portion of the proceeds is subject to customary closing adjustments. The contingent payments are effective Jan. 1, 2018.

ConocoPhillips said it expects the transaction to close in third-quarter 2017, subject to specific conditions precedent being satisfied, including regulatory approval. The company also anticipates recording a non-cash impairment on the assets in the second quarter.

Hilcorp is headquartered in Houston and is one of the largest privately-held independent E&Ps, according to the company press release. Its affiliate, Hilcorp San Juan LP, is a partnership between the company and The Carlyle Group.

Wells Fargo Securities was ConocoPhillips’ exclusive financial advisor on the transaction.

Source: Oilandgasinvestor.com

Now is the time to invest along the Permian Basin in Texas, oil analyst says

A worker prepares to lift drills by pulley to the main floor of a drilling rig in the Permian basin. E&P stocks to buy and sell: Analyst
Friday, 31 Mar 2017 | 2:34 PM ET | 03:02
The saying goes, everything’s bigger in Texas — and this includes opportunities to invest in oil, according to one expert analyst.

Some of the best oil companies to consider investing in are based along the Permian Basin of West Texas, the largest U.S. oil patch, Seaport Global Securities Managing Director Mike Kelly told CNBC on Friday.

“It’s simple economics. … You are spending the least amount of capital [along the Permian], but here you get the most reserves on the ground,” Kelly said on “Power Lunch.” “Lower cost wins.”

Along the Permian alone, the oil and gas industry poured more than $28 billion into land acquisitions in 2016, more than triple what was spent in 2015. These deals are setting the stage for much larger investments that will be needed to extract oil from the ground in coming quarters, many experts agree.

In a Thursday note to clients, Seaport wrote that: “Our oil macro review produced a surprisingly robust outlook. … We think uninspiring [full-year 2017] guidance given on [fourth-quarter] conference calls is a case of massive industry wide sandbagging, which sets up a year of beat opportunities.”

While the near-term environment for many oil names is strong, Kelly has warned investors that he remains relatively cautious with his long-term crude outlook, and says gas is looking “decisively worse.”

Yet Kelly told CNBC on Friday he thinks the wild swing of crude prices lately has actually been “encouraging” for the industry and for many of the companies he follows. “In a $50 world, a lot of these guys make a good living. … You don’t need more than $50 for these things to work.”

Oil prices fell Friday, ending a three-day rally and leading into what could be the oil market’s worst quarter since 2015. Investors are worried that growing U.S. supplies are undermining OPEC-led production cuts. Oil settled the day at $50.60 per barrel, falling 5.8 percent.

For investors looking to put money into the space, Seaport’s Kelly said he would recommend three Texas-based oil stocks: RSP Permian, Ring Energy and Callon Petroleum. Ring is a smaller company but one of the fastest growing small-cap stocks in the sector, Kelly said. And Houston-based Callon is one of the fastest growers overall along the Permian Basin, he added.

“We’re back to backing the Permian wholeheartedly,” Seaport wrote in its Thursday note to investors.

— Reuters contributed to this report.

Source: cnbc.com

Analysts: ‘Rebound’ Coming For Oil And Gas

MIDLAND, Texas—Economic indicators point to a near-term uptick in the oil and gas business after a long and painful downturn, Stratas Advisors researchers told a Midland, Texas, audience March 22.

“We are poised for a rebound,” John Paisie, executive vice president of Hart Energy’s research arm, said in his presentation to the 2017 Permian Basin Outlook Breakfast at the Midland Country Club. There are positive trends, such as Europe’s improving economy and a counterbalance of lingering oversupplies. “We will have a production-demand crossover as the world market rebalances,” Paisie added.

Joining Paisie in the wide-ranging presentation were Greg Haas, Stratas’ director of integrated oil and gas, and Richard Mason, chief technical director for Hart Energy.

Paisie gave a macro view of the industry and how it relates to world and national economies, while Haas focused on midstream and downstream trends—primarily in the Permian. Mason discussed upstream sector trends within the big play, such as drilling, completions and service and supply costs.

Paisie emphasized the importance of viewing the oil and gas business as part of the worldwide economic system. “If you don’t understand the macro factors, then you can’t understand what’s happening in energy,” he said. “That will enable you to maximize the upside and mitigate the downside.”

He discussed Stratas’ methodology and noted that, at a similar breakfast in Houston held in January 2016, he projected crude oil prices would rise to $40 per barrel (bbl) by the end of that year.

Given that the Brent benchmark stood at $26/bbl at the time, “we made a pretty bold prediction,” he added. “But it ended up a good call; our forecast went pretty well.”

At the Midland event, Paisie outlined several reasons for an oil price rebound in the next year, including China’s strong economy and a shift in that nation’s economic emphasis to consumer goods and away from heavy industry. Also, the U.S. economy continues to improve, along with Europe’s, while Iran’s return to the world oil markets brought lower production levels than most economists had projected. OPEC’s production curbs also have helped bring the worldwide crude oversupply into check.

The recent crude price dip is due to lingering oversupply and crude traders moving into long positions. “The sentiment has changed and has become more bearish,” Paisie said, but he projected, despite multiple moving parts of the global economy, better commodity prices are ahead.

Brent prices could move as high at $68/bbl, while the Stratas base case projects Brent at $60/bbl. The U.S. West Texas Intermediate benchmark, in that base case, would likely fall in the $55/bbl to $58/bbl range. Paisie admitted Stratas “is somewhat bullish” in comparison to other current commodity price projections.

Midstream Outlook

Haas opened his presentation by emphasizing just how important the Permian has become in the world’s oil and gas industry.

“The Permian is the driver of liquid supply growth,” he said, adding, “We [U.S. producers] are getting back to where we were, thanks to the Permian Basin.”

The basin’s crude production has climbed by 1 MMbbl/d and continues to rise, he said, with a compound annual growth rate (CAGR) of 8.1%. The midstream is responding to that increase with new pipeline capacity, which Haas projected will have a 9.4% CAGR, “so we will get ahead a little in the game.” The pipelines “will have to run fast to stay in place, so keep putting out those open seasons.”

Turning to his own macro view, Haas noted Permian producers will be competing with the completed Dakota Access Pipeline starting this year, which will be moving Bakken crude to the Midwest and Gulf Coast, while it’s likely the shelved Keystone XL Pipeline will be built to move Canadian crude to the Gulf. Put all of that supply together, plus sales from the federal Strategic Petroleum Reserve, “and we are the United States of excess right now,” Haas added with a chuckle.

Growing exports will have an important role in working off the excess supply, he noted. Exports will help right the growing mismatch between production of light, sweet crudes from the shale plays while much of the nation’s refining capacity has been built to run imported heavy, sour crudes. He noted refiners’ crack spreads are down but remain at a respectable $9/bbl.

Natural gas is another matter for Permian producers, Haas said, because “we still have growing production from the Beast of the East—the Marcellus and Utica—that is really driving natural gas production now.” As with crude, gas exports will be key, he added. Exports to Canada are down because Canadian gas is discounted even more than U.S.-produced gas. However, exports to Mexico and LNG volumes will continue to grow.

U.S. petrochemical plants are strongly favored now due to rising NGL production from the shale plays—as well as discounted gas that can cheaply fuel the nation’s growing cracking capacity.

“U.S. petrochemical producers are sitting in the catbird seat” as a result, he said. NGL exports have been strong and will continue to grow, especially propane, Haas said.

Upstream Trends

Permian producers and service companies have weathered “a downturn like no other,” Mason told the breakfast. Industry observers have questioned whether the turnaround from the downturn that started in late 2014 would be U-shaped or V-shaped. Rather, Mason said “it will be likely the turnaround will be more of a W because of a continued oscillation in the market.”

But regardless of peaks and valleys, he seconded the remarks by Haas and Paisie that “the Permian is leading us off the bottom; this is the most active market on the globe.”

Producers continue to high-grade their acreage, drilling the most prospective locations with longer laterals, more stages and more frack sand. The improving drilling statistics will level off at some point, Mason said, but the Permian energy industry enjoys a substantial technological edge today “and all of that happened with $40 and $50 oil,” noting that “we’re testing the limits of high-intensity completions.”

He discussed separately the various sectors of the Permian’s upstream, calling the workover business “the most challenged sector out there.” Multiple bankruptcies thinned the ranks of workover outfits, “but the equipment is still there and bankruptcies didn’t solve the problem of overcapacity.”

Meanwhile, “high-specification rigs are already in tight supply,” he said, as regional drilling picks up. Large drilling contractors weathered the downturn the best since much of their work is done through long-term contracts. He noted drillers are moving rigs into the Permian from other plays now since it remains the most active region in the country.

“We’re at a critical juncture in the recovery,” Mason said. Prices charged by service and supply companies need to be low enough to attract E&P firms to drill, yet “service providers need to make enough money to be profitable.”

Source: Oilandgasinvestor.com

Trump is about to destroy Obama’s offshore drilling ban with one decisive swoop

President Donald Trump is set to sign an executive order in the very near future that will reverse policies implemented by former President Barack Obama that heavily restricted offshore drilling.

According to Bloomberg, Interior Secretary Ryan Zinke made the announcement Thursday at a closed-door meeting with the National Ocean Industries Association.

More from Bloomberg:

The coming order is set to push the Interior Department to schedule sales of new offshore oil and natural gas rights in U.S. Atlantic and Arctic waters, amending a five-year Obama administration leasing plan that left out auctions there, according to an industry representative who has discussed it with officials.

The order is also expected to begin the process of revoking former President Barack Obama’s decision to indefinitely withdraw most U.S. Arctic waters and some Atlantic Ocean acreage from future leasing. Environmentalists say it would be unprecedented for any president to rescind such a designation, and the reversal would almost certainly be challenged in court.
The action would fulfill campaign promises Trump made last year when he routinely vowed that under a Trump administration, the U.S. would increase domestic energy production, which includes offshore drilling for crude oil and natural gas.

Trump already signed an executive order last week to undo nearly all of Obama’s climate policies. The order also directed the Interior Department and other government agencies to proactively find ways to undo Obama-era climate policy.

However, it will likely take a year or two to completely rid the government of Obama’s drilling lease plan, given its complexity and deep roots. But it will be worth it considering the billions of crude oil reserves that are ripe for harvest.

Source: theblaze.com