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Occidental Petroleum Corp to buy Permian Basin assets from Hess Corp for $600 million

FILE PHOTO: An oil pump is seen operating in the Permian Basin near Midland, Texas, U.S. on May 3, 2017. REUTERS/Ernest Scheyder

June 19, 2017 – Houston based Occidental Petroleum Corp announced that they have agreed to purchase enhanced oil recovery (EOR) projects from New York based Hess Corp. The EOR projects are located in the Permian Basin of West Texas and New Mexico.

Occidental is paying $600 million for Hess’s stakes in the basin.

Occidental Petroleum Corp was founded in 1920 and has their corporate headquarters in Houston, TX. They are a leading producer of oil using carbon dioxide injection, and with this purchase, Occidental will be number one in this field. The purchase will add approximately 3,500 barrel of oil per day in production.

Carbon dioxide injection is a type of enhanced oil recovery (EOR) technique that forces carbon dioxide into conventional wells, which drives more oil to the surface. This technique extends the production life of oilfields. The carbon dioxide comes from power plants or naturally occurring sources.

With this transaction, Occidental also gets full control of large underground carbon dioxide stores. By using these naturally occurring sources, the company will be able to reduce costs since acquiring the carbon dioxide is one of the largest expenses for EOR projects because of the cost to store and transport captured gas from power plants.

Occidental will get the following assets from Hess in the deal: the Seminole-San Andres Unit, the Seminole Gas Processing Plant – both in Texas, the West Bravo Dome CO2 field, and the Bravo Dome unit – both in New Mexico. Hess netted an average of 8,200 barrels of oil equivalent per day in 2016 from these sights.

Once all regulatory approvals and closing conditions are met, the deal should close in early August 2017.

With the sale of its Permian Basin assets, Hess plans to use the proceeds to concentrate on the Liza deepwater project with Exxon Mobil Corporation. The project is off the coast of Guyana, a small South American country that shares borders Venezuela and Brazil.

Occidental also plans to sell non-strategic acreage in the Permian Basin. The company will sell 13,000 acres in Andrews, Martin, and Pecos Counties for roughly $600 million. The company also picked up a small number of acres in Glasscock County.

Vicki Hollub, Occidental President and CEO commented in a statement, “These transactions support our pathway to breakeven at $50 after dividend and production growth and our long-term, returns-focused value proposition. The combined results accelerated cash flow and enhance our future returns by exchanging low-priority development acreage for low decline, low capital intensity EOR production that has significant opportunity for value improvement.”

Morning trading saw Occidental shares at $61.82, down a penny. Hess shares were at $43.25, down roughly 1%. As of Monday, oil was trading at $45 per barrel.

Vicki Hollub added, “By monetizing assets in the tail of the portfolio that were not strategic to us, but are synergistic to other companies, we are creating value for our shareholders.”

Article written by HEI contributor Raymond Arrasmith.

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