ConocoPhillips (COP) To Divest Senegal Assets To Woodside

ConocoPhillips (NYSE:COP) announced that it has entered into an agreement to sell its 35% interest in three exploration blocks offshore Senegal. The three offshore exploration blocks – Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore – had a net carrying value of approximately $250 million as of May 31, 2016. The transaction is anticipated to close by year-end 2016.

The total value of the agreement, which will be conducted through the subsidiaries of ConocoPhillips and Australia's Woodside Petroleum Ltd., is for $350 million plus net customary adjustments of approximately $80 million. The transaction is subject to the approval of the Government of Senegal and co-venturer preemption rights.

ConocoPhillips has leading positions in both natural gas and heavy crude oil in North America. Moreover, the company holds a legacy position in the North Sea and has growing exposure to lucrative international regions. Backed by these positives, ConocoPhillips expects to replace reserves and sustain production growth over the long term.

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However, we remain cautious about the company’s weak near-term production level as the output might be adversely impacted by divestitures. Additionally, downtime in the fields might result in weak production. Further, the company has slashed its capital expenditure guidance to $5.7 billion from $6.4 billion. The decrease is mainly attributable to reduced deepwater exploration activity, deferrals and lower costs across the portfolio. For the second quarter, production from continuing operations is expected at 1,500–1,540 MBOED.

The company expects to spend roughly $11.5 billion this year. However, the spending might be reduced after the most important projects become operational and operations in the unconventional resources of North America are withdrawn.

The company expects 2016 operating costs to be $7.0 billion, corporate segment net expenses of $1.0 billion, depreciation, depletion and amortization costs of $8.5 billion and exploration dry hole and leasehold impairment expenses of $0.8 billion.

At present, ConocoPhillips carries a Zacks Rank #2 (Buy). Other better-ranked players from the energy sector are Chevron Corp (NYSE:CVX) , Murphy USA Inc. (NYSE:MUSA) and ReneSola Ltd. (NYSE:SOL) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).