Phoenix-based Freeport-McMoRan Inc. has agreed to sell its deepwater energy operation in the Gulf of Mexico for at least $2 billion as the company strives to shore up its balance sheet.
The definitive agreement calls for a subsidiary of Anadarko Petroleum Corp. to buy the oil and gas properties for $2 billion in cash, plus up to $150 million in contingency payments based on future cash flows. The deal, expected to close this year, doesn’t require the approval of Freeport-McMoRan shareholders.
Freeport-McMoRan has been working to reduce debt. The deal brings the company’s asset sales so far in 2016 to more than $6 billion. The transaction “reflects our commitment to debt reduction and our focus on dedicating our capital and management resources to our global-leading copper business,” said Richard Adkerson, the Phoenix company’s president and CEO, in a prepared statement.
Freeport owed $18.5 billion in long-term debt at midyear, down from $19.8 billion one year earlier.
“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,” Adkerson said.
For the 12 months through June 30, the deepwater properties generated roughly 73,000 barrels of oil equivalents daily. Over the period, the properties generated $1 billion in revenue against cash production costs around $300 million and capital expenditures of $1.6 billion.
At midyear, Freeport’s long-term debt was 4.6 times its shareholders’ equity, a sign of rising leverage. Assuming most of the asset-sale proceeds are used to retire long-term debt, the ratio would drop to near four times.
