Zacks_Analysts' Blog : Conoco in Twin Sale Deal - Analyst Blog

Globally integrated oil company ConocoPhillips (COP) has signed two asset sale agreements with Canadian pension fund manager Caisse de depot et placement du Québec and Enbridge Inc. (ENB).

Together, the dispositions will fetch ConocoPhillips $2 billion and form part of its ongoing $15–$20 billion divestiture program.

The subsidiary of Caisse de dépôt et placement du Québec will acquire a 16.55% interest in Colonial Pipeline Company and Colonial Ventures LLC from ConocoPhillips. The deal is slated to close in the first quarter of 2012 with the completion of the contractual Rights of First Refusal review by the existing shareholders in Colonial.

The Colonial Pipeline Company operates the Colonial Pipeline that stretches more than 5,468.1 miles from the Gulf of Mexico to Northeast U.S. and transports refined petroleum products.

Additionally, ConocoPhillips will sell its 50% ownership interest in the Seaway Crude Pipeline Company to Enbridge Holdings (Seaway) L.L.C., a subsidiary of Enbridge. With this deal, Enbridge will become the joint partner of the pipeline with Enterprise Products Partners L.P. (EPD) that acts as the operator. The transaction, pending customary regulations, is expected to be completed in December.

The Seaway Crude Pipeline System, which extends 670 miles, comprises the Freeport, Texas to Cushing, Oklahoma long-haul system, along with the Texas City Terminal and Distribution System that serves refineries in the Houston and Texas City areas. The network also includes 6.8 million barrels of crude oil tankage on the Texas Gulf Coast and four import docks at two locations.

ConocoPhillips has already been able to yield proceeds of nearly $8 billion from asset sales for the 2010-2012 divestiture program. With these dispositions, total proceeds will reach approximately $10.5 billion and bring the company closer to its targeted divestiture goal.

The company intends to utilize the proceeds from the asset sales to fund the share repurchase program, invest in capital development projects and create value for shareholders through lucrative distributions.

In July, ConocoPhillips announced its decision to split its operations into two, separating the upstream oil and gas exploration and production unit from the downstream refining division. This will create two standalone, publicly traded corporations operating in their respective market segments, without the constraints of the parent company, and better serve the needs of both investor groups.

We are maintaining a long-term Neutral recommendation on the stock. ConocoPhillips has a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.