Retains oil pipeline shipping rights, most export capacity
Capex for 2018 rises 28% to $5 billion
Will focus on projects that deliver high returns
Occidental Petroleum has agreed to sell non-core Texas and New Mexico crude pipeline and storage assets to two separate buyers for a total of $2.6 billion, saying its Permian Basin projects and other projects can deliver higher margins and growth potential.
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Oxy will sell its Ingleside Energy Center (IEC) and some crude and LPG infrastructure to Moda Midstream, and will also sell its Centurion common carrier oil pipeline and storage system and a southeast New Mexico oil gathering system to Lotus Midstream.
Oxy will retain its long-term shipping rights on the pipeline and most of its export capacity on IEC, top company executives said during a quarterly earnings conference call.
“After [a forthcoming IEC] expansion, we’ve secured the right to market 450,000 b/d of oil through 2030, with options to extend that right for an additional seven years,” Chief Financial Officer Cedric Burgher said.
Oxy never considered those midstream assets as core, CEO Vicki Hollub said. “We just need the capacity on them,” she said.
The company plans to redeploy some of the proceeds, boosting its 2018 capital expenditure nearly 30% to $5 billion.
Hollub said Oxy viewed Centurion as similar to its stake in Magellan Midstream Partners’ BridgeTex Pipeline, which flows through West Texas’ Permian Basin, when the two teamed up to build that line some years ago, at a time when Midland WTI-US Gulf Coast differentials were $10/b. Oxy sold that stake in 2014.
“We never felt we needed to own [the pipeline] to get the benefit, but we had to help build it,” she said.
Similarly, with the assets currently being sold, “we happened into an opportunity,” she said. “The buyers get assets that deliver solid returns and we get cash flow we can use to get better returns for our upstream business and buy back some shares.”
Oxy has a $2 billion share repurchase program planned for the next 12-18 months.
Centurion is a large-scale integrated network of around 2,900 miles of crude gathering and transportation pipelines that extend from southeast New Mexico across the Permian Basin to market centers. Other integrated assets include two crude storage terminals located in the Midland, Texas. and Cushing, Oklahoma, market centers with combined storage capacity of around 7 million barrels and more than 125 truck stations. The system is designed to connect the Permian – the nation’s largest supply basin – to major market centers.
The southeastern New Mexico gathering system includes more than 50 miles of crude gathering pipelines with connections to Centurion and also to a third-party system and related infrastructure.
The transactions should close in the third quarter of 2018.
WELL PRODUCTIVITIES DELIVER EXCESS CASH FLOW
In addition to $2.6 billion in proceeds from the transactions, Oxy will have an incremental $2.5 billion of cash flow this year that it did not expect, through a combination of higher oil prices and continued well productivity in the Permian, Hollub said. The company’s original $3.9 billion capex was based on a WTI oil price of $50/b, which many producers had likewise premised in early 2018.
Having excess cash “strengthens our ability to achieve [production] growth while retaining a strong balance sheet,” in case oil prices should head south, she added.
In Q2, Oxy produced 639,000 b/d of equivalent oil, 64% of it crude oil. That was up 5% sequentially and up 6% compared with the year-ago period.
The company’s oil volume in Q2 was 406,000 b/d, up about 2% quarter on quarter and 7% year on year, with growth mainly coming from the Permian where Q2 oil volumes were 239,000 b/d, up from 226,000 b/d in Q1 and 193,000 b/d in Q2 2017.
In addition, production from Permian Resources, the company’s unconventional Permian operations segment, jumped to 201,000 boe/d in Q2, up 14% sequentially and 46% compared with the same quarter in 2017, stemming from improved well performance, Oxy said.
Permian Resources’ Q2 oil volume was 123,000 b/d, up 13% from Q1 and up 48% year on year.
That contrasts with Permian EOR, the company’s enhanced oil recovery operation in the basin which mainly injects carbon dioxide into oil fields. For that segment, oil volumes in Q2 totaled 116,000 b/d, about flat with Q1 and up 5% from Q2 2017.
EOR using CO2 allows the trapped crude to flow easier to the surface and more efficiently.
The company said it injects more than 950 Bcf of CO2 in Permian oil reserves each year. EOR technology using CO2 can increase ultimate oil field recoveries by 10%-25%.
–Starr Spencer, firstname.lastname@example.org
–Edited by Keiron Greenhalgh, email@example.com