ConocoPhillips Completes Canadian Divestitures on Schedule

Canadian divestitures

On May 17, 2017, ConocoPhillips (COP) closed the divestitures of its 50% non-operated interest in oil sands mining operations located at Foster Creek Christina Lake in Alberta, Canada, and its gas assets located at the western Canada Deep Basin. The divestitures agreements with Cenovus (CVE) were announced in March  2017 and were expected to close in 2Q17.

ConocoPhillips Completes Canadian Divestitures on Schedule

According to ConocoPhillips’ press release, key benefits of the divestiture are:

  • ConocoPhillips received $10.6 billion in cash.
  • ConocoPhillips also received 208 million shares of Cenovus. As of May 19, 2017, the shares are valued at ~$2 billion.
  • ConocoPhillips owns ~16.9% of Cenovus outstanding common shares. There will be a lock-up period of six months which will start when the transaction closes.
  • ConocoPhillips will also receive contingent payments for five years whenever the WCS crude (Western Canadian Select) price moves above $52 Canadian dollars per barrel.

While commenting on the divestitures, ConocoPhillips’s chairman and CEO, Ryan Lance, said “We will achieve a step-function improvement in our balance sheet strength and the pace of our planned share repurchase program. Our focus on free cash flow generation and our clear allocation priorities put us in a strong position to deliver double-digit returns to shareholders through price cycles.”

Peers

In a similar move in March 2017, ConocoPhillips’ peer Marathon Oil (MRO) sold its OSM (Oil Sands Mining) assets located in Canada to Royal Dutch Shell (RDS.A) (RDS.B) and Canadian Natural Resources (CNQ). The transaction was valued at $2.5 billion and marked Marathon Oil’s exit from Canada. Both of these transactions indicate that US oil and gas producers are focusing more on US resource plays.