(COP) ConocoPhillips to Lease in Lowry Range

ConocoPhillips’ (COP) tentative agreement with the Colorado State Land Board worth $137 million has established a new mineral-lease record. ConocoPhillips plans to lease an oil and gas mineral rights lying in the east of Aurora at the old Lowry bombing range for around $6,500 per acre.

In addition, ConocoPhillips will pay a royalty of 20% on the value of any oil and gas extracted from the Lowry range. The company has a deal for rights on 21,048 acres of land and is expected to close in the beginning of April.

ConocoPhillips’ bid of $6,500 per acre beat the previous record of $5,850 per acre set in August 2011 for mineral rights under a 320-acre parcel in WeldCounty.

Colorado State Land Board, which overlooks 4 million acres of mineral rights across the state, has witnessed huge interest from energy companies across the nation for Colorado’s Niobrara oil play. The Niobrara play is projected to have 70 wells, which have generated around 1.5 million barrels of oil and 3.5 billion cubic feet of natural gas.

The mineral rights for the Lowry range are owned by the state land board and Denver International Airport, owned by the city of Denver. ConocoPhillips’ focus on this play is likely to augment its revenues in the coming years as the company will gain an early movers advantage in this region.

ConocoPhillips’ exploration initiatives toward liquids rich plays such as Eagle Ford, Bakken and North Barnett shale plays are gaining momentum. Although we are encouraged by the recent discoveries and the company’s new exploration efforts coupled with a wider reserve base, production growth remains a long-term story.

ConocoPhillips holds a Zacks #3 Rank, which translates to a short-term Hold rating. We also maintain our long-term Neutral recommendation on ConocoPhillips, the third-largest U.S.oil company by market value after ExxonMobil Corp. (XOM) and Chevron Corp. (CVX).

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