Conoco Sells US Gas Asset for $3bn

US major ConocoPhillips said April 13 it has entered into a definitive agreement to sell legacy gas-rich San Juan Basin interests in the southwestern US for up to $3bn to Houston-based independent Hilcorp. Conoco said proceeds would be used for general corporate purposes.

The deal is made up of $2.7bn cash, and a contingent payment of up to $300mn covering a six-year period from January 2018. 

Full-year 2016 production associated with the San Juan Basin assets was 124,000 barrels of oil equivalent (boe) per day, of which 80% natural gas. They generated some $200mn cash last year. Year-end 2016 proven reserves were 0.6bn boe.

Net book value of the assets being divested was some $5.9bn at end-2016 and Conoco said it expects to record a non-cash impairment on them in 2Q2017. The deal is expected to close 3Q2017.

Photo credit: ConocoPhillips

Conoco CEO Ryan Lance (above) said April 13: “Including our recently announced Canadian asset sales, we have line of sight to more than $16bn 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.” 

That included a US$13.3bn divestment of western Canadian oil sands assets, announced just two weeks ago by Conoco.

His remarks show how corporate attitudes to US legacy gas assets has shifted in recent years. Conoco's in-house Spirit newsletter in 1Q2015 noted how: "The San Juan business unit.... plays a vital role in helping ConocoPhillips fund development programmes around the world; primarily a dry gas asset with a long history of production, this legacy operation represents more than a quarter of Lower 48 production and almost 10% of the company's worldwide volumes."

Mark Smedley