Anadarko Petroleum Corp. has entered into a definitive agreement with Indian exploration company ONGC Videsh Ltd. (OVL), a wholly owned subsidiary of Oil and Natural Gas Corporation Limited, to sell a 10% interest in Mozambique's Offshore Area 1 (Area 1) in the deepwater Rovuma Basin for $2.64 billion in cash. Anadarko will remain the operator of Area 1 with a working interest of 26.5%.
"This transaction demonstrates our continuing ability to create substantial value through exploration and to again accelerate the value of our longer-dated projects through attractive monetizations and third-party capital," Anadarko chairman, president, and CEO Al Walker said. "Mozambique LNG is a premier global energy project, and we look forward to working with our partners and the government to advance this world-class development.
"As the operator of Area 1, we are very pleased to have reached this agreement with OVL, which values our pre-transaction interest at more than $9.6 billion. We expect to use the net proceeds from this transaction to further accelerate the short- and intermediate-term oil and liquids opportunities we have in the Wattenberg field, Eagleford Shale, Permian and Powder River basins, as well as the Gulf of Mexico and other evolving plays in our portfolio."
Analysts view the deal as positive. According to a note from Stifel analysts, the deal is positive because the sales price puts a higher value on Anadarko's interest than Cove Energy recieved when it sold a 9% stake in the same block for $1.9 billion. The current sales price implies a value of $19/sh for Anadarko's stake. Additionally, the all cash transaction "brings forward the valuation and allows the company to better redeploy the proceeds to accelerate domestic growth options, which the company has laid out as a use of funds," the analysts noted. Anadarko had previously mentioned that it was also willing to consider carried structure.
Analysts at Jefferies LLC also view the deal favorably for Anadarko. "The cash proceeds will reduce the debt ratio to 28% by year-end from 34% in q2. While the 2014 production growth rate should remain in the 5%-7% range, we expect a shift to onshore liquids basins such as Wattenberg and Permian. Drilling will accelerate the drilling locations while the enhanced liquidity could allow APC to comfortably spend above cash flows, should they choose to. We expect APC will favor short-cycle, high margin liquids projects," they said Monday.
Area 1 is operated by Anadarko Moçambique Area 1 Limitada (a wholly owned indirect subsidiary of Anadarko) and is located in Mozambique's deepwater Rovuma Basin. The block contains the Prosperidade and Golfinho/Atum natural gas complexes that combined hold an estimated 35 to 65-plus trillion cubic feet (Tcf) of recoverable natural gas resources. In cooperation with the Government of Mozambique, Anadarko, its partners, and Eni (as the operator of the adjacent Area 4 block) continue to advance the development of an LNG park with first LNG cargoes expected in 2018.
Anadarko's partners in Area 1 include Mitsui E&P Mozambique Area 1, Limited (20%), BPRL Ventures Mozambique BV (10%), Videocon Mozambique Rovuma 1 Limited (10%), and PTT Exploration & Production Plc (8.5%). Empresa Nacional de Hidrocarbonetos EP's (ENH) 15% interest is carried through the exploration phase.