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ConocoPhillips Inks Deals in Alaska, Focuses on North Slope

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ConocoPhillips (COP - Free Report) recently struck two deals in Alaska. The company divested its Kenai liquefied natural gas (LNG) facility to Andeavor . In another deal, ConocoPhillips acquired stake in Western North Slope of Alaska from Anadarko Petroleum Corporation .

About the Divestment

ConocoPhillips has already closed the divestiture as it transferred Kenai operations to Andeavor on Jan 31, 2018. The financial details of the deal are yet to be disclosed. With the sale of the Kenai assets, ConocoPhillips completed its retreat from the Cook Inlet region.

Divestment Rationale

ConocoPhillips started its search for a company to divest its Kenai LNG plant toward the end of 2016. The divestiture will enable ConocoPhillips to shift its focus to North Slope region operations. Notably, ConocoPhillips is investing in new projects in the North Slope region like GMT-1 and GMT-2, which have bright future. While GMT-1 is in its final construction phase and expected to come online this year, GMT-2 awaits federal approval.

Apart from concentrating on more profitable assets, the deal is also expected to strengthen ConocoPhillips' balance sheet and reduce its leverage, which is one of the best in the industry. As of Dec 31, 2017, the company had a total debt of $19.7 billion, with a debt-to-capitalization ratio of 39%.

About the Acquisition

Concurrent with its fourth quarter 2017 earnings, ConocoPhillips' announced that  it will buy Anadarko Petroleum's 22% non-operating stake in the Western North Slope of Alaska and its interest in the Alpine pipeline for a cash consideration of $400 million. 

In 2017, production from these assets was 63 thousand barrels of oil equivalent per day (MBOED). The acquisition reflects ConocoPhillips’ optimism on North Slope oil prospects. The company expects the Trans Alaska Pipeline System to carry more new oil in the coming years.

Price Performance

ConocoPhillips has gained 15.2% in the last year against the 14.7% fall of its industry.

About ConocoPhillips

Houston, TX-based ConocoPhillips is a major global exploration and production (E&P) company with operations and activities in several countries that include the U.S., Canada, the U.K./Norway, China, Australia, offshore Timor-Leste, Indonesia, Libya, Nigeria, Algeria, Russia and Qatar. The company is involved in exploration, development and production of crude oil and natural gas worldwide.

We also appreciate the company’s initiative to divest non-core assets as the explorer could use the proceeds in the lucrative Eagle Ford shale and Permian Basin. The proceeds will also help the upstream company lower debt that has accumulated owing to the persistent slump in oil for more than three years.

It is to be noted that during 2017, ConocoPhillips generated $16 billion from the asset sale program. However, the company’s 2018 production guidance, which is in the range of 1,195 to 1,235 MBOED is lower than the production of 1,377 MBOED in 2017.

Zacks Rank and Stocks to Consider

ConocoPhillips has a Zacks Rank #3 (Hold).

A better-ranked stock in the oil and energy sector is Cabot Oil & Gas .  It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX -based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 35.9% year over year. Earnings for 2017 are expected to be up 342.9%.

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