Back to top

Analyst Blog

Zacks Equity Research

Freeport to Sell Onshore California Assets to Sentinel Peak


Trades from $3

Freeport-McMoRan (FCX - Analyst Report) has agreed to sell its onshore California oil and gas properties to private energy company, Sentinel Peak Resources California LLC for $742 million, including contingent consideration. The transaction, which is subject to customary closing conditions, is expected to complete in fourth-quarter 2016.

Per the deal terms, Freeport will get $592 million in cash at transaction closing and additional consideration of $50 million per year in each of 2018, 2019 and 2020 if the price of Brent crude oil averages $70 per barrel or more in that calendar year. Sentinel Peak Resources will also assume future abandonment obligations related to properties, which had a book value of around $0.1 billion as of Jun 30, 2016.

Net daily sales volumes from these assets averaged 28,600 barrels of oil per day for the 12-month period ended Jun 30, 2016. Revenues for this period were $0.4 billion.

Freeport does not expect to record a material gain or loss on the transaction. It plans to use the net cash proceeds from the transaction to repay debt.

Freeport’s oil and gas subsidiary Freeport-McMoRan Oil & Gas (FM O&G), last month, also inked a purchase and sale agreement with Anadarko Petroleum Corporation for the sale of its Deepwater Gulf of Mexico (“GOM”) properties for a total cash consideration of $2 billion.

The deal includes up to $150 million in contingent payments that will be received over time as Anadarko realizes future cash flows in connection with FM O&G’s recently completed third-party production handling agreement for the Marlin platform.

The transaction is expected to close in the fourth quarter of 2016. Preferred shareholders in FM O&G’s consolidated subsidiary, Plains Offshore Operations Inc., are entitled to get $582 million in connection with the deal. The balance net proceeds will be used for debt repayment.

Following completion of the California oil and gas transaction and the GOM assets sale, Freeport’s portfolio of oil and gas assets would include oil and natural gas production onshore in South Louisiana and on the Shelf of the GOM, oil production offshore California and natural gas production from the Madden area in Central Wyoming. These assets produced an average of 8,600 barrels of oil and natural gas liquids per day and 78 million cubic feet of natural gas per day in second-quarter 2016.

Freeport’s shares closed around 0.2% higher at $9.66 last Friday.

Freeport currently carries a Zacks Rank #3 (Hold).

Stocks to Consider
Some better-ranked companies in the mining space include Teck Resources Ltd. (TCK - Snapshot Report) , New Gold, Inc. (NGD - Snapshot Report) and Newmont Mining Corp. (NEM - Analyst Report) .    

Teck Resources sports a Zacks Rank #1 (Strong Buy). The company has an expected earnings growth of around 152% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

New Gold, currently holding a Zacks Rank #2 (Buy), has an expected earnings growth of roughly 450% for the current year.

Newmont, which carries a Zacks Rank #2, has an expected earnings growth of 89.5% for the current year.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>