Engineering News

ConocoPhillips' Refining Capacity Could Be 900K b/d Lower by 2013
March 24, 2011

ConocoPhillips will sell up to $10 billion in additional assets over the next two years, significantly upping a previous target, as it steers more money to capital projects and stock buybacks, CEO James Mulva told analysts Wednesday.

The Houston oil giant did not specify which assets could go on the block but said they will be "non-core" to the business and should fetch between $5 billion and $10 billion.

The word comes after ConocoPhillips announced plans in late 2009 for $10 billion in asset sales by the end of 2011, along with spending cuts and other steps, to help pay down big acquisition-related debts and improve shareholder value.

That program was the start of a shift in strategy for the nation's third-largest oil company that Mulva called "shrinking to grow." The idea was to focus less on size and more on returns, partly by reducing its exposure to the volatile oil refining business.

Investors have responded by boosting ConocoPhillips' stock price nearly 50 percent over the past year. On Wednesday, company shares rose another $1.32 to close at $78.54 in New York Stock Exchange trading.

"They're moving in the right direction," said Phil Weiss, an analyst with Argus Research who praised ConocoPhillips' belt-tightening moves and growth strategy. "But they still do have a ways to go till they get there."

Last year, ConocoPhillips netted $7 billion in proceeds from selling its 9 percent stake in Syncrude, a joint venture to develop oil sands in Canada, as well as its 50 percent ownership in the Flying J truck stop chain and oil and natural gas properties in North America.

With the expanded program, the goal now is to sell between $12 billion and $17 billion in assets by the end of 2012. To get to that, the company is replacing the previous $10 billion-by-2011 target and adding the asset sales announced Wednesday to the $7 billion sold last year.

$156 billion of assets

At the end of 2010, ConocoPhillips had $156 billion of assets.

"We are confident that the execution of our plan uniquely positions ConocoPhillips for long-term value creation," Mulva said at an analysts' meeting in New York.

Proceeds from the additional asset sales announced Wednesday will go mostly to a $10 billion share repurchase program announced in February and capital investment opportunities, the company said. The recent $9 billion sale of its 20 percent stake in Russia's Lukoil -- not part of the asset disposal program -- also will give a boost to that effort.

Under the asset sale program, company officials have said in 2011 they could unload additional non-core oil and gas properties in the U.S. and western Canada, as well as other international assets. In addition, the company aims to sell $1 billion in refining assets this year. Its Wilhelmshaven refinery in Germany is already up for sale.

By 2013, ConocoPhillips plans to whittle its global refining capacity to as low as 1.8 million barrels per day, from 2.7 million barrels per day in 2010, and it could fall further after that.

"We're talking to many people about everything we have in the downstream," Mulva said.

More capital spending

This year, the company plans to boost capital spending to $13.5 billion, up from $10.7 billion last year, with approximately 90 percent going to the upstream oil and gas exploration business. Beginning in 2012, annual spending should be closer to $14 billion to $15 billion.

Production, which stood at 1.75 million barrels of oil equivalent per day in 2010, could fall to 1.6 million per day by 2013 because of asset sales. But it should grow 2 to 3 percent a year thereafter as new projects come on line, Mulva said.

Elsewhere, Mulva reiterated his plan to retire sometime in 2012 as chairman and CEO, a post he has held since 2008. He said a "robust" succession plan is in place following a management overhaul in October, though his replacement still has not been named.

Mulva said he did not foresee any big move before his exit, such as merging ConocoPhillips with a rival. Instead, he praised the work his management team has done in restructuring the company and putting it on a growth path.

Source: Houston Chronicle

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