ConocoPhillips to Sell Portion of Canadian Oil-Sands Assets For $13.3 Billion -- Update

By Maria Armental 

ConocoPhillips is selling a large portion of its Canadian oil-sands assets to Cenovus Energy Inc. to pay down debt and significantly increase stock buybacks, marking the latest exit from the oil sands by a non-Canadian player.

The $13.3 billion cash-and-stock deal would turn over to Alberta-based Cenovus the majority of ConocoPhillips's western Canada Deep Basin gas assets along with its stake in the Foster Creek Christina Lake oil sands, in which Cenovus and ConocoPhillips each own 50% and that Cenovus operates.

The deal, Chief Executive Ryan Lance said in a conference call, would "supercharge" the company's three-year financial plan laid out in November, exceeding targets in less than a year, and boosting planned dispositions to more than $16 billion. ConocoPhillips had initially targeted $5 billion to $8 billion.

That leaves the company with "the same priorities as November, except bigger and faster," said Alan Hirshberg, executive vice president for production, drilling and projects.

As part of the deal, the Houston energy company would take an equity stake in Cenovus of 208 million shares, which ConocoPhillips officials said they intend to sell after a 6 month lockup period.

"We are drillers, we are not natural equity investors," Chief Financial Officer Don Wallette said Wednesday.

Cenovus also agreed to make additional payments to ConocoPhillips if the price of oil rises above a certain threshold.

The deal, which is expected to close in the second quarter and is subject to regulatory approval, would double Cenovus's Canadian production and reserves.

But rating firms DBRS and S&P Global Ratings on Wednesday warned the deal could result in a downgrade for Cenovus.

If the sale goes through, ConocoPhillips, one of the largest U.S. shale producers, would still keep a presence in Canada with a 50% stake in the Surmont oil sands-project, which it runs and where it targets a 50% production increase, and full ownership in the Blueberry-Montney unconventional acreage position.

ConocoPhillips plans to use the cash proceeds to cut debt to about $20 billion this year and about $15 billion by 2019. As of Dec. 31., ConocoPhillips's debt stood at more than $27 billion, according to a regulatory filing.

ConocoPhillips also plans to triple the amount allotted for stock buybacks this year to $3 billion and double the overall amount set aside to buy back stock through 2019 to $6 billion.

Canada's oil sands, which have fueled Canada's growth, have been losing out to cheaper U.S. shale oil.

Western Canadian heavy crude costs more to extract because it must be separated from deposits of sand and trades at a discount, in part because of the distance it must be transported from remote boreal forests in Alberta.

Norway's Statoil ASA exited its Canadian oil-sands operations last year, and Royal Dutch Shell said this month it would sell nearly all of its oil-sands developments.

ConocoPhillips shares, up 16% over the past 12 months, rose 6% to $48.55 in after-hours trading while Cenovus's stock fell 8% to $12.

--Chester Dawson and Lynn Cook contributed to this article.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

March 29, 2017 20:35 ET (00:35 GMT)

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