ConocoPhillips to Add Canada Acreage in $375MM Deal

ConocoPhillips reported Wednesday that it has agreed to acquire acreage in the Montney formation in Western Canada from Kelt Exploration Ltd.

Under the terms of deal, ConocoPhillips will pay Kelt approximately $375 million before customary adjustments and assume approximately $30 million in financing obligations for associated partially owned infrastructure. In return, ConocoPhillips noted in a written statement that it will add 140,000 net acres in the liquids-rich Inga-Fireweed asset Montney zone directly adjacent to its existing Montney position.

“We have tracked and analyzed this adjacent acreage position for a long time,” remarked Matt Fox, executive vice president and chief operating officer with ConocoPhillips. “It represents a high-value extension of our existing Montney position, and we’re pleased to capture this opportunity at an attractive cost of supply that meets our criteria for resource additions.”

According to ConocoPhillips, the transaction:

• Adds more than 1 billion barrels of oil equivalent (boe) of high-value resource with an all-in mid-$30s (West Texas Intermediate (WTI) basis) cost of supply
• Reflects an approximate acquisition cost ranging from $2 to $4 per barrel on a WTI cost of supply basis.
• Boosts exposure to the core of the liquids-rich Montney acreage
• Adds an asset with associated production of approximately 15,000 boe per day
• Adds more than 1,000 high-quality well locations
• Increases scale, driving supply chain and offtake improvements
• Assumes no incremental capital investments in the Montney in the next several years.

ConocoPhillips added that it expects the transaction, which is subject to regulatory approval, to close during the third quarter of this year. The company also stated the deal’s effective date is July 1, 2020.

“The transaction provides operating scale and flexibility to create significant value for shareholders by applying our drilling and completion techniques on this asset and optimizing our future overall Montney development plans,” stated Fox.

In a separate written statement, Kelt noted that closing should occur “on or around” Aug. 21, 2020. The Calgary-based firm stated the British Columbia asset sale represents the monetization of roughly 27 percent of its Montney acreage. It added that it will nevertheless remain “one of the largest Montney players in the Western Canadian Sedimentary Basin,” with 374,528 net acres (585 net sections) of Montney land holdings.

ConocoPhillips also stated Wednesday that it initiated production from its Montney development during the first quarter of this year, with production ramping up from its first multi-well pad.

“Our current Montney development is performing according to our projections and plans,” concluded Fox. “We’re still in the process of bringing our initial wells online, and early results are encouraging: we have confirmed the liquids-rich nature of the play and also confirmed that transferring the drilling and completion techniques we’re employing in the U.S. Big 3 can add significant rate and recovery potential to the play. We view the Montney as a very attractive long-term asset and today’s announcement gives us significant running room at a very attractive all-in cost.”

To contact the author, email mveazey@rigzone.com.