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Occidental Petroleum closes deal with Colombian oil and gas company for Permian production

A deal between a Colombian oil and gas company and a major producer in the Permian Basin was completed on Thursday as the foreign company seeks to develop assets in the basin which covers West Texas and southeast New Mexico.

Houston-based Occidental Petroleum announced the joint venture with Ecopetrol in July and received U.S. regulatory approval in October ahead of the deal’s closure.

The $1.5 billion deal would see Ecopetrol develop 97,000 acres in the Midland Basin, on the Texas side of the Permian through its subsidiary Ecopetrol Permian.

To that end, Ecopetrol acquired a 49 percent stake in Rodeo Midland Basin to manage the assets, with Oxy maintaining its 51 percent ownership of Rodeo.

Ecotpetrol already paid about $876.5 million, about half of the total transaction value, per an Ecopetrol news release, with about $750 million for the transaction itself and about $126.5 million in estimated expenditures of the development plan for 2019.

Another $750 million would also be paid in carried capital.

There are two drilling rigs operating in the area to be developed, with two wells drilled and completed to tap in to about 160 million barrels of oil equivalent (BOE) in reserves by the end of 2019.

By the end of 2020, the company expected activity to grow to four rigs in operation and planned to ramp up production until 2027 to up to 95,000 BOE per day.

“This transaction is aligned with Ecopetrol’s strategic priorities outlined in the 2019-2021 business plan, which are focused on reserves and production growth under strict capital discipline, supported by exploration activities, enhanced oil recovery, unconventional resources and the internationalization of operations,” read the release.

“It also strengthens Ecopetrol’s relationship with a respected, strategic partner, highly experienced in the development of unconventional resources.”

Ecopetrol President Felipe Bayon said he hoped the partnership with Oxy could help his company learn more about shale development and apply that knowledge to oil and gas production in Colombia.

“We are excited to partner with one of the largest operators in the Permian Basin, especially one we have worked successfully with for so many decades,” said Ecopetrol CEO President Felipe Bayon.

“This is a key step to enhance our reserve base and production growth whilst we strengthen our capabilities in shale development and bring this technology to Colombia for the economic benefit of the country.”

Oxy Chief Executive Officer Vicki Hollub said the deal combined with the sale of $200 million in “non-core” assets outside the Permian would strengthen the Oxy’s focus on the most productive oil and gas basin in the country.

That move came in response to Oxy’s $38 billion purchase of Anadarko Petroleum closed earlier this year, following a bidding war with Chevron that saw Berkshire Hathaway’s billionaire CEO Warren Buffett committing $10 billion to Oxy after the deal closed.

Hollub said Oxy intended to divest $10 to $15 billion in assets by the middle of 2020.

“Closing the Midland Basin Joint Venture and completing the sale of additional non-core assets are the latest examples of Occidental’s progress towards further strengthening our balance sheet,” she said.

“We will continue to apply proceeds from asset sales to debt reduction, along with fully capturing our acquisition synergies to enhance value for shareholders and position our dividend for continued growth.”

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.

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©2019 the Carlsbad Current-Argus (Carlsbad, N.M.)

Visit the Carlsbad Current-Argus (Carlsbad, N.M.) at www.currentargus.com

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