Shrinking to grow: Is Conoco plan a model for industry?

Bob Tippee

Although one company doesn’t represent a whole industry, a shrink-to-grow strategy adopted by ConocoPhillips illustrates pressures on the biggest operators in a world of shrinking opportunity.

ConocoPhillips has disclosed plans to cut capital spending next year to $11 billion from $12.5 billion this year and $14-15 billion in earlier years and to sell properties in 2010-11 worth $10 billion.

“We will be somewhat smaller,” said Chairman and Chief Executive Officer Jim Mulva in an Oct. 28 conference call.

Mulva noted recessionary effects on credit markets and said diminishing access to large opportunities “is and will continue to be quite an issue.”

Capital spending will target development of ConocoPhillips’s 50 billion boe of oil and gas resources, Mulva said. Of next year’s outlay, 90% will be upstream, with no pullback from exploration. The 10% downstream investment will be for maintenance “and not really much for growth.”

Disposition targets include ConocoPhillips’s 9% interest in the Syncrude oil sands operation in Alberta; 10% of its North American upstream interests; US pipelines and terminals; and interests in the southern North Sea, mainly gas.

Mulva said refineries aren’t part of the sales program because “it is not a very good market to part with or sell refineries.”

Asked about four of the company’s largest projects, Mulva made only one, an Australian coalbed methane and LNG joint venture with Origin Energy, sound immune to change.

He said spending probably will be deferred on an upgrade of the 260,000-b/d refinery in Wilhelmshaven, Germany.

And decisions will be made next year about a venture with Abu Dhabi National Oil Co. to develop sour gas and condensate in giant Shah field and another with Saudi Aramco to build a 400,000 b/d refinery in Yanbu.

While “essentially shrinking to grow,” Mulva said, ConocoPhillips mainly is reorienting toward returns and away from growth.

He said international companies face a changing business model.

“How do they participate in work with national oil companies and sovereigns with respect to this issue of access and development of returns?” he asked. “If it is not there, well, then obviously the companies will get somewhat smaller.”

(Online Nov. 6, 2009; author’s e-mail:

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