Privately-held Sentinel Peak Resources will buy Freeport-McMoRan Inc.’s (NYSE: FCX) onshore California oil and gas properties as the copper giant dumps oil and gas assets.

Denver-based Sentinel will pay Freeport up to $742 million for the assets, the companies said Oct. 14. Freeport will receive $592 million cash at closing. Sentinel also agreed to contingency payments of $50 million per year if Brent crude oil averages at least $70 per barrel (bbl) in 2018, 2019 and 2020.

The assets produce 28,000 bbl/d of oil, including 18,000 bbl/d in the San Joaquin Basin and 10,000 bbl/d in the Los Angeles Basin and coastal properties. The deal does not include Freeport’s offshore California assets.

Freeport-McMoRan has continued to whittle away its oil and gas inventory with deals since September worth up to $2.7 billion. California once made up about a third of its proved and probable reserves.

On Sept. 12, the metals company agreed to sell deepwater assets to Anadarko Petroleum Corp. (NYSE: APC) for $2 billion. In 2015, Freeport filed notice with the U.S. Securities and Exchange Commission (SEC) for a spinoff of its oil and gas division, but abandoned that course in May.

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Following its announced deals, Freeport’s oil and gas portfolio will shrink to 8.6 Mbbl/d of oil and NGL and 78 million cubic feet per day of gas.

Remaining North American assets held by the company include:

  • Offshore California Point Arguello and Point Pedernales fields;
  • South Louisiana and on the GoM Shelf; and
  • Madden area in central Wyoming.

On Guard

Some of the fields acquired by Sentinel have operated for more than a century.

Sentinel is a new company with veteran experience in California. The company was created by former Berry Petroleum COO Michael Duginski and Quantum Energy Partners. Sentinel’s management team is made up of other former Berry Petroleum executives. Duginski helped Berry expand from a $300 million enterprise to a top operator in California and a $4.9 billion enterprise when it sold in 2013.

Sentinel plans to hire Freeport-McMoRan staff and other top operating, technical and commercial talent for its corporate office in Denver and new offices in California.

Freeport said that for the 12 months ending June 30, net daily sales volumes from the properties averaged 28.6 Mbbl/d. Freeport’s oil production is typically heavier than premium grade oil, and the margin is generally less than lighter oil because of refining costs.

Duginski said Sentinel’s team will work with the various stakeholders in California in a safe, reliable and environmentally sensitive way to develop and grow the company’s business.

“Quantum was instrumental in helping us secure this deal and we couldn’t have done it without their experience, relationships, and strong partnership,” Duginski said.

Gold Rush

Sentinel said it has identified a number of economic oil and gas development projects across the asset base that are attractive in the current price environment. The company plans to pursue these development projects, sell some real estate and purchase other assets to build a California-focused oil and gas company.

In the majority of the San Jaqouin, Freeport holds a 100% working interest in the Cymric, Midway Sunset, McKittrick, South Belridge, North Belridge and Arroyo Grande fields, according to SEC documents filed by Freeport in 2015.

The San Joaquin Basin properties consist of long-lived fields with shallow wells, generally less than 2,000 ft. The fields require EOR techniques, including steam injection and produce with high water cuts, SEC documents said.

In the Los Angeles Basin, Freeport held a 100% working interest in the substantial majority of its properties in the Inglewood, Las Cienegas, Montebello, Packard and San Vicente fields. The basin produces light crude oil from well depths of 2,000 ft to 10,000 ft. The properties include both primary production and secondary recovery using waterflood methods.

Freeport said proceeds from the sale will be used for debt repayment. The company does not expect to record a material gain or loss on the transaction.

The transaction has an effective date of July 1, and is expected to close in fourth-quarter 2016, subject to customary closing conditions.

Darren Barbee can be reached at dbarbee@hartenergy.com.