ConocoPhillips to sell UK E&P subsidiaries

ConocoPhillips is to sell its two UK subsidiaries to Chrysaor E&P for $2.675bn. Together, the subsidiaries indirectly hold the company’s E&P assets in the UK, as well as associated decommissioning liabilities. ConocoPhillips will retain its London-based commercial trading business and its 40.25% interest in, and operatorship of, the Teesside oil terminal.

The disposition will allow ConocoPhillips to ‘focus investments across future low cost of supply opportunities’, according to company Chairman and CEO Ryan Lance.

The assets being acquired produced approximately 72,000 boe/d in 2018. This deal will increase Chrysaor’s pro forma 2018 production to 177,000 boe/d, making it one of the largest oil and gas producers in the UK North Sea.

The acquisition of ConocoPhillips UK will accelerate Chrysaor’s strategy to become one of Europe’s leading independent, full cycle E&P companies.  The assets being acquired contain over 280mn boe of proved and probable (2P) oil and gas reserves, with a further significant contingent resource base. 

The deal will add three material assets to Chrysaor’s portfolio, including two new operated hubs in the UK Central North Sea – Britannia and J-Block. In addition to the associated high-quality oil and gas reserve base, these hubs have access to significant contingent resource potential providing near field opportunities for production growth and reserve replacement.  The third acquired asset is an interest in the Clair field area located in the highly prospective West of Shetlands region, complementing Chrysaor’s existing position in the Schiehallion field.

In the UK Southern North Sea, Chrysaor will assume responsibility for an ongoing decommissioning programme on ConocoPhillips UK’s end-of-life assets.

Phil Kirk, Chief Executive, Chrysaor, says: ‘This significant acquisition reflects our continuing belief that the UK North Sea has material future potential for oil and gas production… These assets complement our existing operations and, with operating costs at less than $15/b across the enlarged group, our portfolio delivers high margins and significant positive cash flow.’

Commenting on the deal, Romana Adamcikova, Wood Mackenzie’s Senior Analyst, North Sea Upstream, says: ‘This deal will keep Chrysaor among the UK's largest producers for the next few years. Considering the company was a relatively small producer before it acquired a batch of assets from Shell in 2017, this is a story of incredible growth.’

Adamcikova notes that the deal continues a theme seen across the North Sea in recent years with regionally focused, private companies acquiring assets from larger, international players. ‘Chrysaor has already shown it is willing to take older assets and invest to increase production with its efforts at the Greater Armada Area, which was due to be decommissioned before Chrysaor acquired it from Shell in 2017. It could take a similar approach here, particularly with it now becoming operator at the Britannia and J-Area hubs in the Central North Sea, which have potential for further growth.’

She continues: ‘ConocoPhillips is shifting its focus towards lower cost opportunities elsewhere in the world, particularly in the US. Among such a wider global portfolio, UK fields would have struggled to compete for capital.’

‘Chrysaor also gains a stronger presence in the West of Shetland with a stake in Clair. It already had an interest in the Schiehallion field. There is huge growth potential in the region and it wouldn't be a surprise to see Chrysaor make further moves in the near future, to bolster its mid- to long-term production outlook.’