ConocoPhillips (COP) said Wednesday it will curb its oil and gas output in the short term and shed some refining capacity as it restructures to become a nimbler, more profitable oil giant.
At its annual analyst meeting in New York, the company said it expects production in 2012 to be 1.7 million barrels of oil equivalent a day, about 8% lower than its 2009 production levels, after it sells $10 billion in assets to shore up its finances. However, the oil giant expects to increase its output about 2% to 3% in the long term, with a special focus on producing energy in North America.
The Houston company also said it plans to reduce its refining capacity by 19% to 26%, to a range of 2 million to 2.2 million barrels a day in 2012. Chief Executive Jim Mulva said the company intends to eventually generate 80% to 85% of its revenue from the sale of oil and gas, up from 70% to 75% now.
The shift underscores deep transformations in the energy business unveiled by the recession. The refining business, extremely profitable only two years ago, now is in the doldrums as demand for fuel in the developed world has peaked and stricter environmental regulations increase costs. At the same time, state oil firms are keeping the best energy resources for themselves, shutting international oil companies out. Many companies are focusing instead on North America, blessed with abundant gas resources and a more predictable fiscal regime.
ConocoPhillips, the third-largest U.S. oil company after Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), is also the one that suffered the most from the recession, from the ongoing changes in the business, and from the massive debt resulting from the takeover of Burlington Resources in 2005. In addition to reinventing itself for the new energy picture, the company is now seeking to boost its lagging share price by buying back shares and increasing its dividend 10%. Conoco shares traded at $52.57, up 0.1%.
"It's a good strategy," Oppenheimer & Co. analyst Fadel Gheit said. "Now the question is execution."
The company said it would halve its 20% stake in Russian oil giant OAO Lukoil Holdings (LUKOY, LKOH.RS) in order to buy back shares. Conoco expects to receive about $5 billion based on recent share prices, currently at levels seen five years ago.
"We just felt it was [better] for us to take half of our ownership and invest in our own shares, rather than Lukoil's," Mulva said.
However, Mulva said Conoco intends to maintain a foothold in its Russian partner. "It's important for us to be in Russia," he said, noting that ConocoPhillips "can still have a relationship with Lukoil."
The partial sale of the Lukoil stake "is the right move," because Conoco can cash out of its investment while maintaining a close link to the Russian company, said Phil Weiss, an analyst with Argus Research. Right now "they're not getting a great return."
This year, Conoco said, it plans to complete half of its $10 billion asset sales program, disposing of its 9% stake in Canadian oil sands consortium Syncrude, its share of the Rockies Express natural gas pipeline, 10% of its portfolio in the lower-48 states and western Canada, and what's left of its U.S. gasoline and diesel marketing operations. Most of these sales are expected in the second half of the year, the company said.
In addition, Conoco plans to divest itself of other exploration and production assets, as well as refining and marketing units, by year-end 2011.
Conoco plans to maintain a capital expenditure budget of $11 billion to $12 billion for this year and 2011. Capital spending will rise to a range of $12 billion to $13 billion from 2012 to 2014, the company said.
Source: Downstream Today
