Freeport McMoRan Inc said on Monday it will sell its deepwater Gulf of Mexico oil and natural gas assets to Anadarko Petroleum Corp for $2 billion as it looks to cut its heavy debt load. Anadarko Petroleum expects to generate 3 billion United States dollars free cash flow over the next five years and to add approximately 80,000 net barrels of oil equivalent (BoE) per day, more than 80% of which is oil.
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The deal comes during a year in which Freeport-McMoRan’s top oil and gas executives – including CEO and longtime LSU benefactor Jim Flores – were let go, a shake-up that some industry observers viewed as a sign of Freeport-McMoRan’s reduced focus on energy exploration and production amid slumping commodities prices.
Anadarko said it would offer 35.3 million shares to fund the deal.
Freeport-McMoRan’s stock rose 81 cents, or almost 8 percent, to $11.08 Monday. Secondary stock offerings tend to be unpopular with existing shareholders and shares of Anadarko fell 2.9 percent in after-hours trading to $57.79 per share.
Back in January after posting a $12.2 billion annual loss, Freeport said it would consider selling interests in some of its core assets in order to reduce its bloated debt position, which stood at $20.4 billion at the end of 2015.
Freeport owed $18.5 billion in long-term debt at midyear, down from $19.8 billion one year earlier.
“We expect these acquired assets to generate substantial free cash flow, enhancing our ability to increase USA onshore activity in the DE and DJ basins”.
Freeport-McMoRan president and CEO Richard Adkerson said: “With our announced asset sale transactions combined with cash flows from operations and previously announced at-the-market equity transactions, we are on track to achieve our stated balance sheet objectives”.
The deal also provides for contingent payments of up to $150-million in over time, as Anadarko realises future cash flows in connection with McMoRan Oil & Gas’ (FM O&G’s) recently completed third-party production handling agreement for the Marlin platform.
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Anadarko plans to add two rigs in each play later this year.
