Occidental Petroleum, Ecopetrol to develop Midland Basin properties

Occidental Petroleum and Ecopetrol have announced the formation of a joint venture to develop Midland Basin properties in the Permian Basin.

The joint venture will speed up the development of 97,000 net acres of Occidental’s properties in the Midland Basin.

To acquire a 49% stake in the joint venture, Ecopetrol will pay $750m in cash plus $750m of carried capital.

Occidental Petroleum will own the remaining 51% stake in the joint venture and will serve as its operator.

Ecopetrol is expected to pay 75% of Occidental Petroleum’s share of capital expenditures during the carry period.

However, Occidental Petroleum will retain production and cash flow from its current operations in the Midland Basin.

Occidental Petroleum, Ecopetrol to develop Midland Basin properties. Photo courtesy of skeeze from Pixabay.

The joint venture will enable Ecopetrol to gain access to one of the most prolific resource plays in the world.

At the closing of the transaction, Ecopetrol is expected to book nearly 160 MMboe of proved undeveloped reserves.

As the joint venture will progressively increase its production until 2027, the production share of Ecopetrol is estimated to reach circa 95kboed.

The deal is said to be in line with Ecopetrol’s strategic priorities outlined in the 2019-2021 business plan, which focuses on reserves and production growth, under a strict capital deployment discipline.

Ecopetrol will also deploy its employees for the joint venture, to advance its expertise in shale development and ensure technology and knowledge transfer from the Permian Basin to its assets in Colombia.

The transaction to form the joint venture is expected to be completed by the end of 2019.

Ecopetrol incorporated two new companies, Ecopetrol Permian and Ecopetrol USA  for the development of the joint venture.

Felipe Bayon – Ecopetrol CEO President said: “We are excited to partner with one of the largest operators in the Permian Basin, especially one we have worked successfully with for so many decades.

“This is a key step to enhance our reserve base and production growth whilst we strengthen our capabilities in shale development and bring this technology to Colombia for the economic benefit of the country.”

Credit Suisse is the financial advisor for Ecopetrol in the transaction.