ConocoPhillips confirmed its plans to increase shareholder value at its annual analyst meeting in New York. New information was provided regarding: asset sales; debt reduction; returns enhancement; growth of shareholder distributions through higher dividends; and a resumption of share repurchases. In addition to announcing plans to halve its equity ownership in LUKOIL, ConocoPhillips also provided details on how it intends to grow production per share and convert 10 billion barrels of oil equivalent (BOE) of resources into reserves over the next 10 years.
"We are focused on creating and delivering value to our shareholders," said Jim Mulva, chairman and chief executive officer. "We are taking decisive action to sell assets, reduce debt, build on our record of shareholder distributions, and improve returns while growing production and reserves per share."
Highlights of the meeting included:
As announced in 2009, ConocoPhillips intends to sell $10 billion of assets over two years. Approximately half of the assets will be sold in 2010 with the remainder in 2011, and a portion of the proceeds will be used to reduce debt to targeted levels. Potential 2010 dispositions include the company's ownership interest in Syncrude and the Rex Pipeline, 10 percent of its Lower 48 and Western Canada portfolio and its remaining U.S. marketing assets. It is expected that 60 to 80 percent of the proceeds generated will come from the Exploration and Production (E&P) segment, with an impact by the end of 2011 of approximately 80 MBOED to 120 MBOED on production and approximately 400 MMBOED to 600 MMBOED on reserves. In aggregate, these sales are expected to create financial gains.
Shareholder Distributions Increase
Significant cash flow is expected to be generated from operating activities, the sale of 10 percent of LUKOIL, and asset sales over the next two years. After funding its capital program and dividends, the company expects to use a portion of the remaining free cash flow to fund a 10 percent increase in dividends, continuing the practice of annual dividend increases since the formation of ConocoPhillips eight years ago. Lastly, additional distributions to shareholders will come through a $5 billion share repurchase program announced at the meeting.
Over the next several years, ConocoPhillips plans to significantly increase its Return on Capital Employed (ROCE). This ROCE improvement will be assisted by a recovery in natural gas prices and refining margins in North America and driven by continuous improvement in operating efficiencies, constrained capital expenditures, reduced operating costs, and a shift in the company's portfolio to 85 percent E&P over time.
Production and Reserves Growth
While the sale of E&P producing assets and the reduction in capital expenditures will produce higher ROCE, it will also have a negative impact on BOE production growth over the next few years. In spite of this, ConocoPhillips plans to deliver per share production growth of 3 percent in 2010 and 2011 and 3 percent to 5 percent in subsequent years. Longer term, underlying production is expected to grow 2 percent to 3 percent, as the company converts 10 billion BOE of resources to reserves at competitive finding and development costs.
The company continues to build its portfolio of high-impact exploration prospects. Over the near term, activity is focused on the Caspian Sea, Gulf of Mexico, Browse Basin and offshore Indonesia, as well as resource plays in North America, Poland and China.
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