ConocoPhillips just might be selling its stake in the natural gas-rich San Juan Basin to Hilcorp Energy for as much as $3 billion, said the company Thursday.
The Houston oil explorer said its 1.3 million acres, which stretch from Colorado to New Mexico, will get them $2.7 billion in cash, and payments of $7 million per month as long as natural gas prices stay above a certain level. Payments could last for six years after the beginning of 2018 and are capped at $300 million.
The deal is expected to close in the third quarter as it comes on the heels of a $13.3 billion agreement to sell off Canadian oil sands assets to Cenovus Energy at the end of last month.
Mirroring that deal, the San Juan Basin sale is expected to reduce the company’s exposure to a resource —U.S. natural gas — that has become less and less profitable as of recent years. ConocoPhillips’ assets there produce about 124,000 barrels of oil equivalent a day, but almost 80 percent of that is natural gas. Last year they collected about $200 million cash from operations.
ConocoPhillips said its expected to write down the value of the assets in the second quarter, recording an impairment charge. The assets were worth about $5.9 billion at the end of last year.
In a statement Ryan Lance, ConocoPhillips CEO, said the deal would improve the company’s balance sheet as well as return cash to shareholders.
The amount North American natural gas the company extracts will fall from 20 to 10 percent of its energy production mix, while oil climbs from 35 percent to 45 percent after the San Juan Basin and Canadian oil sands transactions close. International gas will increase from 20 to 30 percent of its energy mix, while oil sands fall from 15 percent down to 5 percent.
Overall operating costs are expected to drop from $6 billion to $5.3 billion.
Article written by HEI contributor Lydia Ezeakor.
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