US independent Newfield Exploration Company (NFX - Free Report) has inked an agreement with energy explorer W&T Offshore Inc. (WTI - Free Report) to sell all of its remaining 78 offshore assets in the Gulf of Mexico (GoM) for $228 million.
The divestiture comprises 65 deep-water blocks, of which six are currently producing and 10 additional shelf blocks, among which four are producing. W&T will also acquire Newfield’s overriding royalty interest in three other deepwater blocks, of which two are producing. Per the deal, all future asset retirement obligations will also be assumed by W&T.
These properties span over approximately 432,700 gross acres, of which around 312,000 gross acres are undeveloped. Around 91% of the undeveloped acreage is deepwater.
The deal includes properties holding proved and probable reserves of 7.7 million barrels of oil equivalent. In July, the average daily output was around 8,350 barrels of oil equivalent, with oil being 37%. W&T will secure operations over 90% of the production.
The deal is anticipated to close by October 1, and will likely be financed with cash in hand and through its revolving credit facility. Newfield has divested assets worth about $300 million in the GoM through late 2011 and 2012, including the latest sale.
The divested deep-water blocks are located in the Garden Banks, Mississippi Canyon and Viosca Knoll areas. These blocks, including others in the Green Canyon and Atwater Valley region are expected to hold exploration potential. On the other hand, Ship Shoal, West Cameron, Vermillion, and West Delta hold the producing conventional shelf leases.
Newfield’s main object behind departing from the GoM region is to concentrate on its onshore oil-rich assets in the United States and Southeast Asia. The company aims to increase its cash flow by boosting oil and liquids growth from its core assets in these regions. Since the beginning of 2012, company has secured about $580 million from non-strategic asset sales, including the current divestment. This goes to show the effort put in by Newfield to increase value for its shareholders.
Newfield has a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Underperform recommendation.