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Blog Coverage ConocoPhillips Nets $3 Billion from Sale of San Juan Basin Assets to Hilcorp Energy

Monday, 17 April 2017 08:15 AM

Active Wall Street

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LONDON, UK / ACCESSWIRE / April 17, 2017 / Active Wall St. blog coverage looks at the headline from Houston, Texas based ConocoPhillips (NYSE: COP) as the Company reported on April 13, 2017, that it has sold off its assets at the San Juan Basin to an affiliate of Hilcorp Energy Company for approximately $3 billion. The deal is expected to close in Q3 2017 and is subject to closing conditions and getting necessary regulatory approvals. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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Commenting on the assets sale, Ryan Lance, Chairman and CEO of ConocoPhillips said:

"This transaction significantly accelerates value from our San Juan Basin assets. Including our recently announced Canadian asset sales, we have line of sight to more than $16 billion of total considerations in 2017. 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."

Jeffery D. Hildebrand, Chairman and CEO of Hilcorp, added:

"We are excited to move into the San Juan Basin and proud to work with ConocoPhillips on a deal that will enhance Hilcorp's presence in the southwestern United States."

Details of the deal

ConocoPhillips' San Juan Basin Assets is being acquired by an affiliate of Hilcorp Energy Company - Hilcorp San Juan, L.P., a partnership between Hilcorp Energy Company and global private equity firm The Carlyle Group. Hilcorp San Juan, L.P. will pay $3 billion for ConocoPhillips's assets, which includes $2.7 billion in cash and balance $300 million as contingent payment. The cash portion of the deal is subject to closing adjustments. The contingent payment is effective from January 01, 2018, and has a tenure of six years.

The net book value of ConocoPhillips's assets at this location was approximately $5.9 billion. The Company plans to record the loss of assets in Q2 2017.

Once the deal is completed ConocoPhillips will not have any operations at San Juan Basin but will continue to have operations in South-eastern New Mexico.

The San Juan Basin Assets

The San Juan Basin is located in North-western New Mexico and South-western Colorado and ConocoPhillips is the largest operator in the area. The production yield from this basin mainly consists of coal-bed methane and approximately 35% natural gas liquids. The production yield from this location for the entire year in 2016 was 124 thousand barrels of oil equivalent per day (MBOED), out of which approximately 80% was natural gas.

The production estimated for full year of 2017 from this location is approximately 115 MBOED, consisting of approximately 80% natural gas and 20% natural gas liquids. The proved reserves of the site for year-end 2016 was 0.6 billion barrels of oil equivalent.

Second assets sale by ConocoPhillips

This is the second assets sale done by ConocoPhillips in last few weeks. On March 29, 2017, ConocoPhillips sold off its 50% non-operated interest in the Foster Creek Christina Lake (FCCL) oil sands partnership, as well as the majority assets in western Canada Deep Basin to Cenovus. The total value of both these transaction is approximately $13.3 billion.

ConocoPhillips plans to use the funds raised from these assets sale to reduce its debt and bring it down to $20 billion in 2017. Simultaneously, ConocoPhillips plans to double its share buyback program to $6 billion.

ConocoPhillips has also disclosed that the impact of these two assets sale on cash flows would be reflected in the Q1 2017 earnings report which is expected to be released on May 02, 2017.

These assets sale will enable ConocoPhillips to deleverage its balance sheet immediately. The Company will be able to focus on increasing shareholder value by way of higher dividend pay-outs and share buybacks. The Company's aim is to deliver annual double-digit returns to its shareholders.

Stock Performance

On Thursday, April 13, 2017, the stock closed the trading session at $48.62, falling 1.66% from its previous closing price of $49.44. A total volume of 8.80 million shares have exchanged hands, which was higher than the 3-month average volume of 7.75 million shares. ConocoPhillips' stock price advanced 6.06% in the last month, 13.10% in the past six months, and 12.49% in the previous twelve months. The Company's shares have a dividend yield of 2.18%. At Thursday's closing price, the stock's net capitalization stands at $60.15 billion.

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