by Reuters|Ernest Scheyder|Friday, October 16, 2015
WILLISTON, N.D., Oct 16 (Reuters) – Occidental Petroleum Corp's move to sell its North Dakota acreage likely removes a logjam that had impeded U.S. oilfield deals for much of the year, though the deal's price sets an unusually low bar for future deals and gives buyers the advantage over sellers.
Oxy is selling all of its roughly 300,000 acres in North Dakota's Bakken shale formation to a private equity fund in a deal valued around $500 million, sources familiar with the matter told Reuters.
The price is roughly one-sixth, though, of what Wall Street had expected Oxy to fetch for the assets as recently as last year.
Houston-based Oxy did not sell the North Dakota assets out of distress; indeed, it has $2.8 billion in cash in the bank. Rather, the deal removes an operational distraction from managers focused elsewhere and helps the company achieve its goal of being cash-flow neutral.
Still, for ConocoPhillips, Whiting Petroleum Corp , Oasis Petroleum Inc and other oil companies pursuing pipeline or oil acreage sales, Oxy has set the bar low.
"The (Oxy) sale price shows the stark reality that operators trying to sell non-core acreage face in a sub-$50 per barrel oil world face," said Tim Rezvan, an oil industry analyst at Sterne Agee CRT.
Conoco, one of the largest American oil producers, is trying to sell oil and gas properties in the Rockies, East Texas, South Texas and Northern Louisiana, with expectations for the total value of all the deals eclipsing $2 billion.
As with Oxy, the deals would not be crucial to Conoco's survival, but would give the company cash to weather the low oil price storm and focus more on core operations.
Yet with Oxy accepting far lower than Wall Street expected for its non-core acreage in North Dakota, it remains to be seen if Conoco can hit that target.
Whiting and Oasis are currently selling so-called midstream assets mostly comprised of pipelines and saltwater disposal units.
But the assets, which generate steady streams of cash, might now go for far less than executives want, which would be potentially harmful for these companies.
In the case of Oasis, which operates only in North Dakota, the sale of all or part of its saltwater disposal business is seen as vital to keeping core oil operations online. Earlier this month Wall Street banks cut Oasis' credit line by roughly $170 million, the largest reported reduction this autumn of an oil producer's access to debt markets in the wake of plunging crude prices.
That cut stressed the company's balance sheet and put further onus on a good price for the saltwater disposal assets, which at one time was estimated to be worth as much as $880 million.