Woodside Petroleum (ASX: WPL) is in the news with the announcement about its acceptance to pay about $US430 million for venturing into the ConocoPhillips’ oil project off the coast of Senegal. The company has entered into a binding Purchase and Sale Agreement (PSA) with ConocoPhillips to acquire all of ConocoPhillips’ interests in Senegal with an effective date of January 01, 2016. The plan is to set up the project for production off West Africa early next decade. ConocoPhillips holds 35% of a contract with the Senegal government covering Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore blocks. This move by ConocoPhillips is part of company’s phased exit from deep-water exploration in West Africa. With this deal, Woodside is expected to pay $US350m upfront and $US80m as a completion payment. Nonetheless, the deal completion is subject to approval by the Senegal government and pre-emption rights by the joint venture partners (Petrosen, Cairn Energy and FAR Ltd). The company expects to close the deal by the end of 2016.
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Discovered Resources (Source: Company Reports)
Key things to note for WPL -
WPL’s expansion of exploration exposure: This deal will expand WPL’s exposure to an emerging exploration site while possibly providing Woodside to have 35% of the SNE and FAN deep-water oil discoveries. The deal also signifies WPL’s adherence to its strategy of expanding in under-explored and highly prospective emerging oil sites. The deal aims to proffer a non-operating stake to WPL with an option to take over as operator through the development and operating phases for the project worth $US5.6 billion to $US8.6bn producing up to 100,000 barrels of oil per day from 2021 (as indicated by Cairn Energy).
Commercial production growth for the company: Woodside gets a potential commercial production growth via the deal just ahead of the release of data by FAR with regards to the SNE field.
Discounts proffered: The deal is pricing the resource at $US2.20 per barrel, which is well below the asset valuation of about $US7 per barrel (as per RBC Capital Markets). Senegal discoveries are being said to break even at prices in the $US30s a barrel range, as per estimations from Cairn Energy, sometime ago.
Deal termed to be a counter cyclical acquisition: Experts consider WPL’s move to deliver returns in a long term recovery in oil price, which is done at a fair value for the so called world class deep water license.
WPL’s share price rose 3.21% in the last one month (as at July 13, 2016) but fell 1.1% on July 14, 2016 in line with the on-going challenges faced by the Australian energy sector as a whole despite the above announcement.
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