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COP to Quit Twin Peru Blocks

Zacks Equity Research

US supermajor ConocoPhillips (COP) plans to withdraw its operations from twin exploration blocks – 123 and 129 – in Peru’s Maranon Basin. The company is set to give the next exploration period for the blocks a miss.

The two large-scale blocks are located in the Tigre district, Loreto Region and span across 1.9 million net acres. The Maranon Basin holds two conservation areas - the Pucacuro National Reserve and the Alto Nanay-Pintuyacu-Chambira Regional Conservation Area - which were both developed after the licenses were awarded in 2006.

ConocoPhillips will transfer its 45% stake to junior partner Gran Tierra Energy in a no financial deal. Gran Tierra Energy bought 20% stake in the blocks two years ago. ConocoPhillips’ operatorship of the blocks will also be transferred, subject to government approvals. ConocoPhillips will work with Perupetro - the Peruvian petroleum licensing agency, and Gran Tierra SRL to aid a competent transition.

The decision taken by the company regarding the two blocks forms a part of ConocoPhillips’ broader strategic effort to realign their investments as well as asset portfolio after separating its downstream and refining business. The decision was very tough on the part of the company’s management, as they had developed a close relation with the communities in the area. Multiple rounds of seismic acquisition have already been performed at the blocks.

ConocoPhillips’ ongoing three-year repositioning program aims at improving its balance sheet through asset sales of around $15 billion to $20 billion. It also comprises large-scale share buybacks and the spin off of its refining arm earlier this year.

ConocoPhillips announcement of stalling its operations in Peru follows Canada’s Talisman Energy Inc. (TLM) news of pulling out of the same blocks and two others in a move to exit Peru altogether. However, Talisman maintained that its decision was not supported by environmental and community concerns.

ConocoPhillips has a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Underperform recommendation.


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