Investors Wait For Next Asset To Drop In Conoco's Sales Plan

HOUSTON (Dow Jones)

ConocoPhillips (COP) investors are hoping for the company to quickly unveil the next step of its plan to sell up to $17 billion in noncore assets by the end of 2012 and reinvest a bulk of the proceedings in share buybacks.

Conoco's stock outperformed rivals Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) last year after investors embraced a large-scale, two-year restructuring plan presented in late 2009 that included a $10-billion asset sale and was aimed at shoring up its finances. Conoco's shares surged more than 30% in 2010, helped by evidence that the plan was going full steam ahead. By the end of last year, the sale plan seemed to be moving along. Conoco had sold $7 billion in assets, including its stake in oil sands oil producer Syncrude Canada Ltd. and the majority of its 20% stake in Russia's oil giant Lukoil OAO for $5.82 billion. Conoco said the Lukoil proceedings were excluded from the original $10-billion asset-sale plan and that money would be used to buy back the company's own shares. Those sales went so well that the Houston-based company announced in March it will expand its planned program through 2012 by selling an additional $10 billion of older, higher-cost assets.

But after a strong start, the company has this year given few signs that the asset sale is on schedule, says Fadel Gheit, an analyst at Oppenheimer & Co. "The company is keenly aware that the market is looking for news on the progress they are making in their asset sale," he said.

Conoco still has another year to complete the plan, but uncertainty about the pace of the second phase of the asset sales is starting to take a toll on its stock. Year to date, Conoco's shares are up 9.7%, underperforming the stock of Exxon and Chevron, which are up 10.6% and 12.1%, respectively.

Some analysts believe ConocoPhillips would have to make a significant announcement by the end of July, when it will report second-quarter earnings, if it wants to maintain momentum with investors; worries will only increase the longer no announcement is made. "If they don't announce something in the third quarter, the concern could rise," says Allen Good, an analyst at Morningstar.

Others believe that it's good for shareholders that the company is taking its time to make concrete sales plans. "With asset sales, it is rarely a good idea to rush the process," says Pavel Molchanov, an analyst at Raymond James. "A lower, more deliberate process can allow the seller to maximize value for the asset."

Conoco spokesman John Roper said the company doesn't "discuss potential acquisitions and dispositions prior to their closings. While we expect additional announcements this year, we have none to discuss at present."

Conoco has made a few medium-sized deals this year, including an April sale of a 15% stake in the planned Australia Pacific LNG Project in Queensland for $1.5 billion and the sales of its Seaway Products Pipeline in South Texas for an undisclosded price. But the company needs to make a couple of large-scale assets sale announcements to let the market know that it isn't behind schedule, Gheit said.

Conoco could shed assets in Australia and Kazakhstan, say UBS analysts who in June met with ConocoPhillips Chief Financial Officer Jeff Sheets. Those could include new stakes in Conoco's Australian liquefied natural gas venture with Origin Energy Ltd. (ORG.AU), and its 8.4% interest in the Kashagan oilfield in Kazakhstan, UBS said. Conoco's partner in the field, Exxon Mobil, received a $5 billion bid for its identical stake in Kashagan, according to the Wall Street Journal.

Alan Hirshberg, Conoco's Senior Vice President of Planning and Strategy, said in a presentation at a May energy conference that the company is also looking at leaving countries where it has a small presence, and selling some marginal refining assets like the Wilhelmshaven refinery in Germany. Hirshberg said Conoco is also considering turning refineries into product terminals and striking joint venture agreements, exchanging refining capacity for oil and gas assets.

Conoco would most likely want to pull out of the East Coast market, where fuel imports into New York Harbor make price competition extremely difficult, UBS said. The company has two major refineries in the area, the 238,000 barrel-a-day Bayway refinery in Linden, New Jersey; and the 185,000 barrel-a-day refinery in Trainer, Penn. Valero Energy Corp. (VLO) sold two of its refineries in that region in 2010 to private equity firm PBF Energy. PBF declined to say whether it was interested in the Conoco refineries in the area.


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