A consortium of Indian state-run companies have emerged as a prospective buyer of certain stakes in some of the Canadian oil sands assets of US supermajor ConocoPhillips (COP - Analyst Report) worth around $5 billion.
Conoco intends to sell about 50% stake in its oil sand reserves in Alberta, which comprises both producing assets as well as exploration assets. The Texas-based company has engaged Scotia Waterous for farming-out in six Alberta properties. These assets, which were placed in the auction block in January 2012, have a daily yield of about 25,000 barrels of oil from an estimated 30 billion barrels of bitumen in place. Further development of these reserves could augment output to over 500,000 barrels per day (bpd).
Of Conoco’s six properties on offer in Canada, only Surmont, which is operated through a joint venture with France's Total SA (TOT - Analyst Report), is producing oil. The property situated south of the oil sands hub of Fort McMurray, Alberta, has a daily yield of about 25,000 barrels. By 2015, the partners propose to enhance the output to 136,000 bpd.
The other properties offered for sale are the Thornbury, Clyden, Saleski, Crow Lake and McMillan Lake assets, which collectively span across 715,000 acres.
The trio of Indian companies - Oil and Natural Gas Corporation (ONGC), Indian Oil and Oil India – had placed a non-binding bid for a stake in the six Alberta properties of Conoco toward the end of July.
India - the world’s fourth-largest oil importer - buys around 80% of its requirements from overseas. In order to assist the rising demand and refining capacity addition, the Indian government has asked the state firms to acquire energy assets abroad. It will further help them in diversifying its portfolio, which is more focused on conventional maturing assets.
ONGC Videsh Ltd - the overseas unit of ONGC - targets to raise its production seven-fold by 2030 through an investment of about $20 billion. Earlier in September 2012, the company bought a stake in US energy firm Hess Corporation’s (HES - Analyst Report) Azeri, Chirag and Guneshli (AGC) group of oil fields in Azerbaijan for $1 billion.
As part of its global restructuring program, Conoco has been on the look out to divest assets in various countries, including Nigeria. Conoco’s recent offer of its six Alberta properties reflects its effort in this respect.
Conoco has a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Underperform recommendation.