Hilcorp unit to buy ConocoPhillips’ San Juan basin assets for up to $3 billion

Hilcorp San Juan LP, a partnership of Houston-based Hilcorp Energy Co. and Washington DC-based private equity firm The Carlyle Group, has agreed to acquire ConocoPhillips’ interests in the San Juan basin of northwestern New Mexico and southwestern Colorado for up to $3 billion.

Full-year 2016 production from the assets was 124,000 boe/d, of which 80% was natural gas, with cash from operating activities for the year totaling $200 million. Full-year 2017 estimated production is 115,000 boe/d, consisting of 80% natural gas and 20% NGLs. Yearend 2016 proved reserves were 600 million boe.

“The San Juan basin acquisition fits the profile of the established, conventional assets Hilcorp typically aims to secure and enhance,” commented Jason Rebrook, Hilcorp president and chief development officer.

The purchase price comprises $2.7 billion in cash and a contingent payment of up to $300 million that’s effective beginning Jan. 1, 2018, and has a term of 6 years. The deal is expected to close in the third quarter.

As of Dec. 31, 2016, the net book value of the assets was $5.9 billion, which includes $2.8 billion of step-up basis associated with ConocoPhillips’ acquisition of Burlington Resources Inc. in 2006. ConocoPhillips expects to record a noncash impairment on the assets in the second quarter.

“Including our recently announced Canadian asset sales, we have line of sight to more than $16 billion of total considerations in 2017,” said Ryan Lance, ConocoPhillips chairman and chief executive officer. “These transactions will materially reduce our exposure to North American gas and achieve an immediate step change improvement in our balance sheet and cash margins.”

ConocoPhillips last month agreed to sell its 50% interest in the Foster Creek Christina Lake (FCCL) oil sands partnership and the majority of its Deep basin conventional assets in Alberta and British Columbia to Cenovus Energy Inc. for $13.3 billion (OGJ Online, Mar. 30, 2017).

Contact Matt Zborowski at [email protected].