- Cash portion of proceeds will be used
to reduce debt to $20 billion in 2017 and double existing share
repurchase authorization to $6 billion
- Transaction significantly improves
underlying financial and portfolio metrics
ConocoPhillips (NYSE: COP) today announced it has signed a
definitive agreement with Cenovus (TSX: CVE) (NYSE: CVE) to sell
its 50 percent nonoperated interest in the Foster Creek Christina
Lake (FCCL) oil sands partnership, as well as the majority of its
western Canada Deep Basin gas assets, for total proceeds of $13.3
billion. ConocoPhillips Canada will retain its operated 50 percent
interest in the Surmont oil sands joint venture and its operated
100 percent Blueberry-Montney unconventional acreage position.
Total proceeds for the transaction are $13.3 billion before
customary adjustments, consisting of the following
considerations:
- $10.6 billion of cash, payable at
closing; and
- 208 million Cenovus shares, valued at
$2.7 billion on March 28, 2017.
In addition, the company will receive five years of uncapped
contingent payments, triggered when Western Canada Select (WCS)
crude prices exceed $52 Canadian dollars per barrel. Using March
28, 2017 foreign exchange and differentials, WCS of CA$52 per
barrel would equate to WTI of approximately $52 per barrel.
“This is a significant, win-win opportunity for ConocoPhillips
and Cenovus,” said ConocoPhillips Chairman and Chief Executive
Officer Ryan Lance. “This transaction will make an immediate and
significant impact on the company’s value proposition by allowing
us to rapidly reduce debt to $20 billion and double our share
repurchase authorization to $6 billion. This means we will not only
accelerate, but exceed, the three-year plan we laid out in November
2016. The transaction is accretive to our cash margins and lowers
the average cost of supply of our portfolio, with no impact to our
estimate of cash provided by operating activities at $50 per barrel
Brent price. We will retain upside to future oil price increases
through our equity stake in Cenovus and an uncapped, five-year
contingent payment. ConocoPhillips Canada will now focus
exclusively on our Surmont oil sands and the liquids-rich
Blueberry-Montney unconventional asset. Cenovus will assume sole
ownership of FCCL and assume operations in the Deep Basin assets.
This is truly a transformational event for both companies.”
The company intends to use the cash portion of the transaction
proceeds to reduce debt to $20 billion in 2017 and increase the
level and pace of share repurchases. The ConocoPhillips board of
directors approved an increase in the existing share repurchase
authorization to a total of $6 billion, which is double the
previous $3 billion authorization. The company also intends to
triple its planned 2017 buybacks from $1 billion to $3 billion,
with the remaining $3 billion allocated to 2018 and 2019.
The full-year 2017 estimated production associated with the
assets being sold is 280 thousand barrels of oil equivalent per day
net after royalty (NAR), comprised of approximately two-thirds
liquids and one-third gas. The full-year estimated 2017 production
and operating expenses associated with the assets being sold is
$0.4 billion. The company’s previously stated estimate of cash
provided by operating activities (CFO) of $6.5 billion at $50 per
barrel Brent is unchanged as CFO from the disposition is roughly
offset by lower interest expense. The company does not expect any
change to 2017 capital expenditures. Year-end 2016 reserves
associated with the asset dispositions were 1.3 billion barrels of
oil equivalent NAR.
“We laid out a bold and unique value proposition in late 2016
that was focused on free cash flow generation, a strong balance
sheet, returning cash to shareholders, disciplined growth and
improved returns,” said Lance. “Our stated plan was to accelerate
our value proposition by reducing debt with asset sales. Clearly,
this transaction significantly accelerates those efforts and
provides an important catalyst that should allow investors to have
clarity and confidence in our future direction. Today’s
announcement clears the way for us to execute a plan that we
believe will create long-term value and deliver double-digit
returns to shareholders annually.”
The disposed assets had a net book value of approximately $10.9
billion as of Dec. 31, 2016. The transaction is subject to specific
conditions precedent being satisfied, including regulatory review
and approval. The company expects to record a gain on sale upon
closing, which is expected in the second quarter of 2017.
Additionally, the company expects to recognize a financial tax
accounting benefit of approximately $1 billion in the first quarter
of 2017, which results from the capital gain component of the
transaction and recognition of previously unrealizable tax basis.
Tax expense associated with the sale will be recorded at the time
of closing.
ConocoPhillips will host a webcast to discuss this announcement
at 5:30 p.m. ET / 4:30 p.m. CT today. A link to the webcast is
available at www.conocophillips.com/investor. Related materials
will be posted on the company’s website prior to the call.
--- # # # ---
About ConocoPhillips
ConocoPhillips is the world’s largest independent E&P
company based on production and proved reserves. Headquartered in
Houston, Texas, ConocoPhillips had operations and activities in 17
countries, $90 billion of total assets, and approximately 13,300
employees as of Dec. 31, 2016. Production excluding Libya averaged
1,567 MBOED in 2016, and proved reserves were 6.4 billion BOE as of
Dec. 31, 2016. For more information, go to
www.conocophillips.com.
CAUTIONARY STATEMENT FOR THE PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This news release contains forward-looking statements.
Forward-looking statements relate to future events and anticipated
results of operations, business strategies, and other aspects of
our operations or operating results. In many cases you can identify
forward-looking statements by terminology such as "anticipate,"
"estimate," "believe," "continue," "could," "intend," "may,"
"plan," "potential," "predict," "should," "will," "expect,"
"objective," "projection," "forecast," "goal," "guidance,"
"outlook," "effort," "target" and other similar words. However, the
absence of these words does not mean that the statements are not
forward-looking. Where, in any forward-looking statement, the
company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed
to have a reasonable basis. However, there can be no assurance that
such expectation or belief will result or be achieved. The actual
results of operations can and will be affected by a variety of
risks and other matters including, but not limited to our ability
to complete our sale of certain of our assets in western Canada
(the “Sale Transaction”) to Cenovus Energy Inc. (Cenovus) on the
timeline currently anticipated, if at all; the possibility that
regulatory approvals for the Sale Transaction will not be received
on a timely basis, if at all, or that such approvals may require
modification to the terms of the Sale Transaction or our remaining
business; business disruptions during or following the Sale
Transaction, including the diversion of management time and
attention; our ability to liquidate the Cenovus common stock
received in the Sale Transaction at prices we deem acceptable, or
at all; the ability to deploy the net proceeds from the Sale
Transaction in the manner and timeframe we currently anticipate, if
at all; changes in commodity prices; changes in expected levels of
oil and gas reserves or production; operating hazards, drilling
risks, unsuccessful exploratory activities; difficulties in
developing new products and manufacturing processes; unexpected
cost increases; international monetary conditions; potential
liability for remedial actions under existing or future
environmental regulations; potential liability resulting from
pending or future litigation; limited access to capital or
significantly higher cost of capital related to illiquidity or
uncertainty in the domestic or international financial markets;
general domestic and international economic and political
conditions; and changes in tax, environmental and other laws
applicable to our business. Other factors that could cause actual
results to differ materially from those described in the
forward-looking statements include other economic, business,
competitive and/or regulatory factors affecting our business
generally as set forth in our filings with the Securities and
Exchange Commission. Unless legally required, ConocoPhillips
undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Use of Non-GAAP Financial Information – To supplement the
presentation of the Company’s financial results prepared in
accordance with U.S. generally accepted accounting principles
(GAAP), this news release contains certain financial measures that
are not prepared in accordance with GAAP, including cash margins
and free cash flow. Cash margins are calculated as cash provided by
operating activities divided by production. Free cash flow is cash
provided by operating activities in excess of capital expenditures
and investments required to maintain flat production, working
capital changes associated with investing activities, and dividends
paid. Free cash flow is not a measure of cash available for
discretionary expenditures since the Company has certain
non-discretionary obligations such as debt service that are not
deducted from the measure.
The Company believes that the non-GAAP measure cash margins is
useful to investors as it provides a measure to compare cash
provided by operating activities on a per unit of production. The
Company believes that the non-GAAP measure free cash flow is useful
to investors as it provides a measure to compare cash provided by
operating activities after deduction of capital expenditures and
investments, working capital changes associated with investing
activities, and dividends paid across periods on a consistent
basis.
The non-GAAP measures included in this news release have
limitations as an analytical tool and should not be considered in
isolation or as a substitute for an analysis of the Company’s
results calculated in accordance with GAAP. In addition, because
not all companies use identical calculations, the Company’s
presentation of non-GAAP measures in this news release may not be
comparable to similarly titled measures disclosed by other
companies, including companies in our industry. The Company may
also change the calculation of any of the non-GAAP measures
included in this news release from time to time in light of its
then existing operations to include other adjustments that may
impact its operations.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170329006154/en/
ConocoPhillipsDaren Beaudo, 281-293-2073 (Corporate
media)daren.beaudo@conocophillips.comorRob Evans, 403-532-3576
(Canadian media)rob.evans@conocophillips.comorAndy O’Brien,
281-293-5000 (Investors)andy.m.obrien@conocophillips.com
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