Conoco to Farm-out in Kashagan - Analyst Blog

Texas-based ConocoPhillips (COP) has validated that it is on the receiving end of a formal notification by the Kazakhstan Ministry of Oil and Gas. The Ministry is exercising its right under the Subsoil Law of Kazakhstan to pre-empt ConocoPhillips' proposed sale of its 8.4% interest in the North Caspian Sea Production Sharing Agreement (Kashagan) to ONGC Videsh Limited. As part of such notice, the Ministry of Oil and Gas has nominated KazMunayGas (KMG) as the body that will obtain ConocoPhillips' interest in Kashagan. The asset is located in the Kazakhstan sector of the Caspian Sea. Under the pre-emption, the proceeds received by ConocoPhillips will remain unchanged at about $5 billion, including customary adjustments. Subsequently, KMG will proceed on finalizing all essential approvals, which will include a consent from the Kazakhstan Anti-Monopoly Agency. The transaction is likely to conclude in the fourth quarter of 2013. The latest sale of the company's interest in Kashagan forms part of ConocoPhillips' strategy to enhance shareholder value through portfolio optimization as well as focused capital investments. These will likely lead to growth in production and cash margins, superior returns on capital and a compelling dividend. ConocoPhillips remains on track with its divestment program, with a total of over $12 billion completed. The company has generated $1.1 billion in proceeds from asset sales during the quarter and expects to raise an additional $8.5 billion from the disposition program by the end of 2013. In this regard, ConocoPhillips is trying to shed part of the Surmont and APLNG projects this year. This would enable ConocoPhillips to generate a healthy cash surplus in 2013. ConocoPhillips carries a Zacks Rank #3 (Hold). However, Zacks Ranked #1 (Strong Buy) stocks – PetroQuest Energy Inc. (PQ), Ocean Rig UDW Inc. (ORIG) and Hornbech Offshore Services, Inc. (HOS) – are expected to perform impressively over the short term.