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3 Probable Asset Sales ConocoPhillips Has On The Horizon

Mar. 21, 2017 10:27 AM ETConocoPhillips (COP)21 Comments
Callum Turcan profile picture
Callum Turcan


  • A look at what assets ConocoPhillips wants to monetize as part of its $5-8 billion divestment program.
  • ConocoPhillips should be getting bids for its San Juan Basin assets very soon.
  • Two LNG terminals are also going to be sold off (probably), but the timetable on those sales is less certain.

One of the big strategic shifts ConocoPhillips (NYSE:NYSE:COP) laid out at its November 2016 analyst meeting was its plan to divest $5 billion-8 billion in domestic natural gas weighted assets. This is to fund its $3-billion share buyback program and to bring its gross debt load down by $7 billion to $20 billion by the end of 2019. So the big question is what is on the auction block that could raise such a sum.

Upstream sales

The San Juan Basin stretches from southwestern Colorado to northwestern New Mexico, touching parts of Utah and Arizona as well. Home to oil & gas activity since the early 1900s, this is a very established conventional upstream play that is heavily weighted towards natural gas and natural gas liquids production.

ConocoPhillips owns 1.3 million net acres of oil & gas leases in the San Juan Basin that are held by production, 900,000 net of which are prospective for unconventional plays. During 2016, Conoco's San Juan division produced 27,000 BBLs/d and 727 MMcf/d of natural gas net, equal to an average of 124,000 BOE/d. Its liquids production is mostly (or all) NGLs.

A natural gas processing plant in Bloomfield, New Mexico, with 550 MMCf/d of capacity handles a lot of that production. Conoco operates the facility and has a 50% stake in the plant. Most of the firm's production comes from the Fruitland formation which houses one of the largest amounts of coalbed methane resources in the world.

During Conoco's Q4 conference call management commented that "we are seeing a lot of interest" in North American natural gas assets and that "we expect to get bids in and have some decisions probably over the next couple of months with respect to San Juan."

Investors should expect an update on the divestment process by the

This article was written by

Callum Turcan profile picture
Worked as an equity analyst for several years in the USA and have been writing financial articles and analyzing publicly traded companies for more than a decade.

Analyst’s Disclosure: I am/we are long COP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (21)

Just need good old short squeeze with surprise of this sale and cash infusion.
To sreenivas: The "good old short squeeze" starts tomorrow! :)
Nobody saw this coming! Up almost $3 dollars in After Hours Market. I just wish I had bought more at $44 a week ago! My cost basis is $46 so I am not complaining! :)

Great execution by COP Management! They said they were going to sell Canadian assets and they did. Kudo's to them for a 14 Billion Dollar Deal. These guys have made me more money since Nov. 9, 2016 then any other stock I own, besides MO and PM. GO COP!
Fred Beyers profile picture
applaud the deal

$6B in share repurchase would be a substantial portion of actual cash to be received--seems to be more of managements idiotic lack of planning for "lower for longer" which they have acknowledged to be likely.

This would adequately fund their previously announced $3B buy back which I had previously criticized roundly when they were projecting only $5B to $8B.
Callum Turcan profile picture
@Fred Beyer As a thought, it's possible management is banking on the sale of some of Conoco's other assets, like its San Juan Basin operations, to justify those purchases but we'll see. If future divestments push COP's buyback program cap higher then clearly that is not the case.

I say this because I agree, quite a lot to allocate to share buybacks when $50 WTI is far from certain and its a $10.6 billion cash deal (rest in equity). Overall though great news, lower share count at least helps push down dividend payments and acts as stock price catalyst.
Fred Beyers profile picture
"...Cenovus to buy ConocoPhillips' 50% stake in FCCL, other assets for C$17.7B
Mar. 29, 2017 4:25 PM ET|About: Cenovus Energy, Inc. (CVE)
|By: Carl Surran, SA News Editor ...."

Is this as good as it appears to be?
BeaBaggage profile picture
wow transformational for CVE for sure, author missed this potential sale in his mix!

whoda thunk CVE could come up w 14bUS$.. oil sands hot, have to wonder if MEGEF is next to be taken over as consolidation continues w Keystone XL approval etc. Venezuela is truly screwed..

MEGEF had no trouble raising 750m at 6.5% in Jan '17.. they have a lot of debt but good mgmt.. put meggie back on my radar.. Bea
Callum Turcan profile picture
Looks like it @Fred Beyers, ConocoPhillips will push its debt load down to $20 bullion gross this year while saving $400 million on opex. Operating cash flow to stay the same due to interest payment reduction. Contingent payments if oil prices rally, and most of this deal is in cash with CVE shares offering upside if oil prices climb higher.
WTI back at $49 after having been as low as $47 in the past week. When WTI was at $47, COP got down to $44. Now with WTI at $47, COP is up to $46 this morning (on Inventory Oil and Gasoline numbers). There may be a correlation between the stock price and the Oil price:
WTI at $47 = COP at $44
WTI at $48 = COP at $45
WTI at $49 = COP at $46
WTI at $50 = COP at $47
WTI at $51 = COP at $48
WTI at $52 = COP at $49
WTI at $53 = COP at $50

My thesis is that if an investor has a notion as to where WTI is going Daily/weekly/monthly, the investor could buy or sell COP in accordance with the correlation listed above. With Spring/Summer seasonality now upon us (as shown this morning with Gasoline drawdowns), we find WTI at $49 and COP at $46. If an investor believes WTI will creep back above $50 over the next 4 weeks going into COP's April 27th Earnings Report, we should find COP share price somewhere between $47-$48 going into the Report. A "Beat" by COP should make the stock make a move back to $50. I don't know if it will hold above $50 because WTI would have to be close to $53 based upon my correlation listed above.

If an investor were to buy COP today $46, I would venture to say that they could make 9% on their Capital over the next 4 weeks going into the Earnings Report. I am situated accordingly.

Wishing Well To The Author and COP Shareholders!
Retired One,

I have noticed the same thing with COP, seems to track closely with the price of oil. At least until the price gets extremely high like a few years ago. I like your short term strategy for COP but I think the same thing would apply if you tried to determine the price of oil in 3-5 years. If you believe it will be higher over that time frame COP will do very well indeed.

I appreciate your comments and think they are very valuable.

ps. COP made a great sale on some of their Canadian properties; well done by management. They will do right for their shareholders by paying down debt and buying back shares.
Selling Canadian natgas assets, too? Not material?
DanTheMan1984 profile picture
chipmunk2greysquirrel profile picture
Seems a well targeted mix of assets to dispose of that are not in their growth plans. I hope they get good value and make significant inroads on improving their balance sheet.
Fred Beyers profile picture
COP price 2/25/17: $47.36

"...would not want to be in short-term overpriced/long-term underperforming COP or CVX unless a pretty sudden plunge of 12% or more from current pricing. While operating performance has improved slightly, neither have demonstrated even the slightest rationale in financial management!
Feb 25, 2017. 07:32 AM

Exxon's big reserves cut is a chance to reset, Bloomberg's Denning writes - SA Editor Carl Surran..."

Opinion unchanged currently
Fred Beyers profile picture
Author: "...Management's rationale behind divesting these assets is that the market is placing little to no value on them, and considering the two LNG facilities aren't really operating, ..."

Hence they should fetch excellent prices--LOL!
Callum Turcan profile picture
@Fred Beyers Cash is cash :D
Fred Beyers profile picture
uthor’s reply » "...@Fred Beyers Cash is cash :D..."

Then don't pass it out in idiotic unearned distributions (refuse to even call them dividends) and share buy backs!
Callum Turcan profile picture
@Fred Beyers Fair.
My Thanks to the Author for his update on possible asset sales that are projected for 2017. I would ask the Author his opinion on how much the projected sales could affect the Earnings Per Share for the entire year of 2017? What would the Author project EPS for COP without any asset sales and if they sell say 25%, 50%, 75%, 100% of these assets (at projected prices) what would that do to the EPS for 2017?

Once again, my Thanks to The Author for a Thought and Question Provoking article that begs to ask how these Asset sales could affect EPS and therefore the Share Price. I am a Shareholder in COP and I am looking for them to have a "Turnaround Year" based on $50 Oil and I would consider these
Asset Sales to be "Frosting On The Cake".

Wishing Well To The Author And COP Shareholders!
Callum Turcan profile picture
@Retired One Thanks, glad you enjoyed it. In regards to COP's EPS, the main way these sales would impact its 2017 EPS is by the firm recording a gain or loss on the sale, so it depends on what the book value of these assets are which is only readily available for the Golden Pass terminal. I wouldn't expect these divestments to have a huge impact on 2017 earnings, it's more about the cash flow boost that can be used to fund shareholder returns.
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