ConocoPhillips Co. (NYSE: COP), Alaska’s largest oil producer, has signed a deal that takes over Anadarko Petroleum Corp.’s (NYSE: APC) nonoperated interests in the western North Slope for just $9 per barrel of oil.
ConocoPhillips’ $400 million bolt-on transaction in Alaska gives the company 100% control over 200 million barrels (bbl) of gross reserves and about 900 MMbbl of risked gross reserves. In 2017, gross production averaged 63,000 bbl/d. Anadarko is also including its interest in the Alpine pipeline as part of the deal.
About 16% of ConocoPhillips’ asset value is tied to Alaska, where it owns 1.2 million acres of exploration and development lands, including the January 2017 Willow discovery. As of September, Alaska production contributed 21% of ConocoPhillips’ liquids volumes and less than 1% of its worldwide natural gas production.
“This is a very attractive transaction that allows us to consolidate our existing position on the western North Slope where we have an ongoing development activity and an exciting 2018 exploration program currently underway,” Ryan Lance, ConocoPhillips’ chairman and CEO, said on a Feb. 1 earnings call.
On Jan. 31, ConocoPhillips also said it sold its LNG facility in Kenai, Alaska, to Andeavor (NYSE: ANDV), an independent U.S. refiner, completing its exit from the Cook Inlet region, Reuters reported.
Lance said the deal came together after Anadarko expressed the desire to sell some of its assets, including the Alpine pipeline, and ConocoPhillips seized on an opportunistic acquisition.
“I think we're the natural buyer because we operate [it] and we have the majority interest in the area,” he said. “So we were able to come to terms with them. And we think it's attractive for both companies in terms of what we're each trying to go do. So it makes a heck of a lot of a sense to us to pick up that interest and be in complete control 100% and control the capital pace and destiny over there.”
Asked on the earnings call about investor skepticism regarding supply costs in Alaska, Lance said the company has operated in the northernmost state for about 40 years and still sees opportunities.
“Our production is flat to growing over the next 5 to 10 years,” he said. “A lot of that's driven by things like the Willow discovery. And when we look at that, it competes very well, and the portfolio sits at a cost of supply that is very competitive to investments around the world.”
Investors will likely respond positively to the agreement, said Paul Y. Cheng, an analyst at Barclays.
With 63,000 barrels of oil equivalent per day in 2017, ConocoPhillips’ purchase suggests it purchased Anadarko’s production at $29,000 per daily flowing barrel “or only $9/bbl of current estimated remaining recoverable resource.”
Despite rising oil prices, ConocoPhillips remains focused on expanding its cash flow from higher-margin production rather than “growing production for production’s sake,” said Roger D. Read, a senior analyst at Wells Fargo Securities.
“The company is on track for meaningful cash flow and is set to reach goals laid out at the November 2017 analyst day,” Read said, adding that the company delivered on a promised dividend increase and buyback expansion, debt repayment and made no change in its $5.5 billion capex plans.
Lance said the company’s announced plan for 2018 was based on $50 per bbl West Texas Intermediate prices.
“Certainly, prices have moved quite a bit higher since then. So, the obvious question is, will our plan change? The answer is no, not with respect to our organic investment plan. Our $5.5 billion capital plan is unchanged from what we outlined in November. Of course, that excludes the bolt-on transaction in Alaska we announced [Feb. 1] for $400 million.”
Darren Barbee can be reached at email@example.com.