I predict the sale of the Montney Gas Plants to a mid-stream operator.
8 replies (most recent on top)
Rumour has it, Ryan Lance tried selling Montney all together during his last visit to Canada, but the deal fell apart.
I heard they're turning into water plants....
@a4 Apparently ChatGPT.
@a7 this sounds smart so COP won’t do it and instead they will do the opposite
Check return of COP vs PSX Since spin-off and try to make your case.
Does CP hate The United Steelworkers union (USW) that much?
The core rationale for ConocoPhillips to sell the Montney midstream gas plant (225 mmscf/d capacity) and retain the wells/acreage focuses on maximizing shareholder value by concentrating capital on their core competency: upstream exploration and production.
- Capital Recapture and Reinvestment
Recouping Capital: The stated initial investment is significant: $400 million CAD in 2019 and $500 million CAD in 2023, for a total of $900 million CAD. Selling the plant allows ConocoPhillips to immediately recoup this large capital investment.
Focus on Core Business: E&P companies generally generate higher returns from drilling and production than from operating regulated, fee-based infrastructure. The sale would free up capital to be reinvested into high-return upstream projects—namely, drilling more liquids-rich Montney wells, or in other core regions (e.g., Permian, Alaska).
Debt Reduction/Shareholder Return: The cash proceeds can be used for debt reduction or returned directly to shareholders via share buybacks or increased dividends, aligning with a corporate strategy of financial discipline and value creation.
- Risk Mitigation and Strategic Focus
Offloading Operational Risk: Midstream assets like gas plants require specialized maintenance, operational expertise, and are subject to regulatory and environmental compliance unique to infrastructure. Selling transfers this operational and regulatory burden to a dedicated midstream operator.
Price and Contract Volatility Shield: While the plant likely has a fee-for-service component (mitigating direct commodity risk), a sale fully removes the company from the capital risk associated with operating and expanding midstream assets.
Optimized Service: A third-party midstream company specializes in optimizing throughput and securing new contracts, potentially offering ConocoPhillips better and more reliable service via a long-term processing agreement (take-or-pay contract). This ensures production continues to be processed while eliminating the headache of plant management.
- Financial and Valuation Arbitrage
Higher Multiple Valuation: Midstream companies (often Master Limited Partnerships or their Canadian equivalents) are valued differently than E&P companies. They are typically valued on a predictable fee-based cash flow multiple (EV/EBITDA), which can be higher and more stable than the commodity-price-sensitive multiples applied to an E&P company like ConocoPhillips.
Unlocking Trapped Value: By transferring the asset to a company that can value it at a higher multiple, ConocoPhillips effectively "unlocks" trapped value that the public market wasn't fully recognizing within the larger E&P business structure.
What do you base this on?