ConocoPhillips Plans to Sell Additional $5-$10B of Assets

(Dow Jones Newswires), March 23, 2011

ConocoPhillips unveiled plans to sell an additional $5 billion to $10 billion in non-core assets over the next two years and said it will use the proceeds to fund its share buyback and capital expenditure programs.

The move, announced at the company's analyst meeting in New York, had been expected by some analysts. Chief Executive Jim Mulva told analysts the company plans to sell a total of $12 billion to $17 billion in assets in a three-year period, including at least $1 billion in refining and marketing properties this year. Mulva, who announced he will retire from his post some time next year, said potential new dispositions include non-strategic assets in the North Sea and additional mature assets in the U.S. and Canada. The plan also includes a 15% stake in the Australia-Pacific liquefied natural gas project it agreed to sell last month to Sinopec.

"We are executing the plan set out last year to improve returns and create value through disciplined capital spending, non-core asset sales and growing production per share," Mulva said.

Mulva told analysts that the additional asset sale target is expected to come on top of the $7 billion the company already sold in assets last year and excludes the $8.3 billion from the sale of its 20% stake in Russian oil giant Lukoil.

Conoco is in the midst of a restructuring plan started in 2010 to shore up its finances by selling assets. It initially said it didn't plan to sell refining properties until next year, aiming to avoid selling assets at deep discounts, but in October it said it would ramp up its sale of assets in 2011 amid a rebound in the industry.

The asset sales mark a shift from Conoco's debt-fueled acquisition spree when commodity prices were soaring. It also underscores the company's confidence that its "shrink-to-grow" strategy is yielding positive results among investors. Oil and gas producers have traditionally been judged primarily on how quickly they can grow reserves and production. But adding enough oil reserves to please investors is becoming tougher each year as state-controlled oil companies restrict access to the most promising new resources. For investor-owned oil companies, improving the profitability of what they do own has become the next best option.

ConocoPhillips, the third-largest U.S. oil company by market value after ExxonMobil and Chevron, said it expects its oil-and-gas production to be between 1.6 million and 1.7 million barrels of oil equivalent per day in 2013, down from 1.75 million barrels of oil equivalent per day it produced last year due to the impact of the asset sale program. The oil giant, however, said it expects output to grow 2% to 3% per year in the long term, driven mainly by the startup of projects in Asia, the North Sea and the U.S.

The company expects to use proceeds from the asset sales announced Wednesday to fund a $10 billion share repurchase program it had previously unveiled, and for capital investment. In a slide presentation, the company said it expects share buybacks to total $11 billion through 2012.

Conoco plans $13.5 billion of capital spending this year, with the vast majority targeted for exploration and development. It said it plans to invest $14 billion to $15 billion per year from 2012 to 2015.

Mulva, who has run the company since 1999, said Conoco's spending plans are unlikely to change with his expected retirement next year.

"The company is in great shape. It makes a lot of sense to do it at that point in time," Mulva said.

Conoco said it plans to invest 50% more this year in projects in North America mainly aimed at increasing drilling activity in oil-rich shale areas such as the Eagle Ford in Texas and the Bakken Shale in North Dakota.

Mulva said it is unlikely Conoco will make any large-scale acquisitions but he added it could expand its presence in some areas such as the deepwater of the Gulf of Mexico through small scale deals.

ConocoPhillips said it sees oil prices remaining strong in the long term, driven by increased global demand, but added that natural gas prices in the U.S. are likely to remain depressed due the shale gas production boom.

The company said it plans to invest $1.4 billion in the APLNG project, which will be sanctioned by mid-year and have its first liquid natural gas delivery in 2015. Conoco is also planning to ramp up exploratory drilling in the Caspian Sea, with a new well planned for its Kazakhstan N Block offshore for late this year or early 2012. The company is also negotiating a production sharing agreement for Block 19 in Turkmenistan.

Copyright (c) 2011 Dow Jones & Company, Inc.


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