ConocoPhillips shedding assets, keeping part of Lukoil

ConocoPhillips on Mar. 24 reiterated its plans to shed $10 billion in assets during 2010-11.

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Mar. 24 -- ConocoPhillips on Mar. 24 reiterated its plans to shed $10 billion in assets during 2010-11. The company also announced plans to sell half its 20% stake in OAO Lukoil as part of a strategic plan to reduce debt and focus primarily on its upstream assets while gradually reducing its downstream holdings.

James Mulva, chief executive officer, told analysts in New York that he expects the company will receive $5 billion for 10% interest in Lukoil. Proceeds will be used to repurchase ConocoPhillips stock, he said. ConocoPhillips bought into Lukoil in 2004 and since then has built its holdings to 20%.

“We think that as important as it is to be in Russia, we haven’t delivered on new opportunities as quickly as we thought we would,” Mulva said. “We will still have a strategic relationship with Lukoil.”

As announced in 2009, ConocoPhillips intends to sell $10 billion of assets, which is separate from the anticipated sale of half its Lukoil holdings. Potential 2010 sales include ConocoPhillips’s stakes in Syncrude oil sands joint venture in Alberta and the Rockies Express natural gas pipeline, 10% of its Lower 48 and Western Canada assets, and its remaining US marketing assets.

Previously, ConocoPhillips had said 2010 production will drop as the company constrains spending to improve its finances in what Mulva sometimes calls “shrinking to grow.”

ConocoPhillips plans to gradually reduce its refining holdings so that exploration and production will account for 85% of its assets over the long term. Mulva expects downstream profit margins will rebound in 2012 so then “we can lighten up our refining.” It’s not a good time now to sell refining assets, he said, adding that near-term downstream spending will be primarily on maintenance.

Plans call for ConocoPhillips to have 2-2.2 million b/d refining capacity in 2012 and ultimately 1.8-2 million b/d, Mulva said. That compares with the company’s current 2.7 million b/d refining capacity worldwide.

Regarding upstream, Mulva said ConocoPhillips already has a good position in the Lower 48 states and Canada. Worldwide, he expects the company will convert 10 billion boe of resources into reserves during the next 10 years.

ConocoPhillips plans to focus on high-impact exploration prospects, he said. Near-term activity is planned for the company’s assets in the Caspian Sea, the Gulf of Mexico, Australia’s coalbed methane, off Indonesia, Poland’s shale gas, and China.

This year, the company plans to spend $950 million on Canadian steam-assisted gravity drainage assets, where it is working to improve its performance in steam oil ratios, both in the laboratory and in the field, executives said.

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