Texas based Multinational Energy Corporation, ConocoPhillips Co.(COP, Financial), recently announced its exit from the non-core oil and gas producing acreage in the U.S. in a move to recover from the oil and gas industry’s slump that has begun from the last year. The company has hired Wells Fargo & Co. (WFC, Financial) to sell between $1 billion and $2.5 billion worth of U.S. noncore assets as per industry estimates.
Why the sale
ConocoPhillips Co. is a Fortune 500 company with its operations worldwide. The company was created in 2002 through the merger of Conoco Inc. and Phillips Petroleum Co. and currently manages its operations through six operating segments which are defined by geographic reach: Alaska, Lower 48 and Latin America, Canada, Europe, Asia Pacific and Middle East and Other International.
The oil and gas industry’s slowdown is not news anymore. In fact some of the companies are preparing to buy assets as the prices are low in a hope that the industry will rise soon, while some others are holding on to their assets with a mindset that they can leverage more once the prices recover. On the other hand, America’s third-largest energy producer ConocoPhillips Co. is all set to sell its oil and gas properties in the Rockies, East Texas, South Texas and Northern Louisiana. As of now, the sale process has been confidential and thus not much detail is available on the same, but it’s a world-known fact that such readjustments and optimization of product portfolio as per situation is usually common in the energy business.
The company had also undergone another sale process earlier in 2015 of its Canadian assets. Another major development in the company was during last week when it announced a job cut and the plan to reduce operating costs by $1 billion annually by the end of 2016. Going forward, the company plans to focus more on the unconventional and unexplored North American shale. The company aims at modifying its portfolio from time to time.
The company’s financial advisers have revealed that ConocoPhillips will undergo a $ 10 billion sale program in U.S. and Canada to increase its finances. The Canadian properties to be divested produce around 10,000 barrels of oil per day fetching about $750 million. The value of the U.S. assets to be sold would be larger than those being sold in the Canadian market, though the company has not finalized on the properties to be sold in the U.S. ConocoPhillips has plans of selling assets in South Louisiana, the Barnett shale and in the Gulf of Mexico in the near future.
Market scenario
A lot of other companies are also undergoing similar changes. Anadarko Petroleum Corp. (APC, Financial) has offered few hundred million dollars’ worth of East Texas acreage for sale to Citigroup Inc. (C, Financial). The asset sale by ConocoPhillips has been termed as the largest U.S. acreage sale this year by any oil and gas company. This decision of divestment was taken after a drop of 50% in the oil prices since June last year. This sale represents the second major sale taken up by the company this year while the first was initiated last month in Western Canada with the aid of Canada-based Scotia Waterous Inc. that worked as the financial advisor assisting in the potential sale.
Conclusion
Market analysts feel that investors should hold on to the company’s stock citing reasons like its strong financial position, reasonable debt levels and expanding profit margins. With the selling of these assets, ConocoPhillips Co. plans to strengthen its financial position in the market further and expects higher growth of margins in the coming future.
