Occidental to sell Argentine assets, buy Bakken, other US asset

Oil producer Occidental Petroleum Corp. (NYSE: OXY) recently announced plans to pay $3.2 billion for certain US assets while selling assets in Argentina to China for $2.5 billion.   

Argentine operations 
Oxy executed an agreement with a subsidiary of China Petrochemical Corp. (Sinopec) to sell Occidental's Argentine oil and gas operations for after-tax proceeds of approximately $2.5 billion. The assets being divested currently produce roughly 44,000 boe/d net to Oxy. When the transaction closes, Occidental expects to report a gain on the sale. 

South Texas, North Dakota
Occidental also announced that it had executed agreements to purchase oil and gas properties in South Texas and North Dakota for about $3.2 billion.

The South Texas assets will be purchased from Shell for about $1.8 billion and currently produce approximately 200 million cubic feet per day of gas equivalent. Shell has owned and operated the properties for many years. The assets will be 100% operated by Occidental and have an excellent inventory of drilling opportunities.

From a private seller, Oxy will buy nearly 180,000 net contiguous acres in North Dakota which produce from the Bakken formation and are prospective in the Three Forks formation. The purchase price is approximately $1.4 billion. The assets currently produce approximately 5,500 boe/d and Occidental's net risked reserve exposure is in excess of 250 MMboe. 

Combined with Occidental's other interests in the Williston Basin, Occidental will have an interest in over 200,000 net acres and over 6,000 boe/d of production. Occidental expects to grow production in the Williston Basin to at least 30,000 boe/d over the next five years.

Plains All-American
Additionally, Occidental announced that it has signed an agreement to increase its General Partner (GP) ownership in Plains All-American (NYSE:PAA) by 13%, bringing its total ownership in the GP to roughly 35%.PAA's operations compliment Occidental's domestic oil and gas operations. Plains is one of the largest operators of oil pipelines in North America with operations in Texas, California, and North Dakota, among other areas.

The company will also acquire the remaining 50% joint venture interest in the Elk Hills Power Plant from Sempra Generation, bringing Oxy's interest to 100%. Oxy expects the move to improve efficiency and lower operating costs at Oxy's Elk Hills business unit.

Management comments
"These transactions will be immediately accretive to our earnings, return on capital employed and cash flow after capital. With these new acquisitions and without Argentina in our asset mix, achieving both our short-term and long-term average annual production growth outlook of 5-8% will be more certain and will generate higher returns," said Ray R. Irani, chairman and CEO of Occidental.

"These properties, combined with acquisitions completed earlier this year, will more than replace the production from the sale of Argentina. We expect that each of these new acquisitions together with future drilling, potential exploration and consolidation opportunities in these areas, over time, will grow to over 50,000 barrels of oil equivalent per day (boe/d)."

"In light of our outlook for improved free cash flow, the Board has agreed to increase our common dividend rate by 21% from 38 cents per quarter to 46 cents per quarter effective with the April 15th payment. The formal dividend declaration will be made by the Board of Directors in February," said Irani. 

The company will finance the acquisitions from both exisiting balance sheet cash and debt financing, and expects all transactions to be completed no later than the end of the first quarter of 2011. 

Shares of the company were up +1.480 (+1.625%) at US$92.55 after the announcement.

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