Conoco to halve its LUKOIL stake, sell some assets
Friday, 26 March 2010
HOUSTON, Mar 25 (Reuters): ConocoPhillips said it plans to sell half of its 20 per cent equity stake in Russian oil major LUKOIL in the open market, divest some assets and reduce refining capacity as part of a two-year plan to boost returns and reduce debt.
Conoco lags its oil major peers in returns. The company has big exposure to a weak refining market, and its exploration and production assets in North America are tilted toward less-profitable natural gas.
The Houston company released a bare-bones plan to revive its finances five months ago, which included the sale of $10 billion in assets.
At the time, investors and analysts speculated that Conoco might sell part of its stake in LUKOIL, and last week Reuters reported that Conoco had decided to do so.
It is "more appropriate " for the company to use proceeds from part of its LUKOIL interest to increase shareholder value through stock repurchases, Jim Mulva, Conoco chief executive, told the company's annual meeting with analysts. But he also said it was important for the company to remain in Russia.
One reason Conoco decided to pare its interest in LUKOIL was slower-than-expected access to some projects, Conoco investor relations executive Clayton Reasor said, declining to provide any specifics.
LUKOIL would be the most likely buyer of the 10 per cent stake, which is worth $4.9 billion, analysts at Raymond James said in a research note.
LUKOIL Vice President Leonid Fedun told analysts in London that his company would not rule out buying shares from Conoco, but added that the Kremlin could oppose such a move.
"If they sell the stake back to LUKOIL, I think they might get a lower price," said Phil Weiss, oil analyst with Argus Research. He added that the process would likely go smoothly because Conoco would be selling in the open market.
LUKOIL, Russia's No 2 oil company, regards Conoco as a strategic partner and many analysts see the presence of the US major in LUKOIL's capital as a guarantee that the Kremlin treats LUKOIL more carefully than its peers.
Conoco had a number of meetings with LUKOIL and Russian authorities before the share sale plan was announced, Reasor said.
Conoco said potential dispositions in 2010 include its interests in the Syncrude oil sands project in Canada and the Rex pipeline in the US, 10 per cent of its Lower 48 and Western Canada portfolio, and its remaining gasoline retail operations.
About half of the assets will be sold in 2010, and the remainder in 2011, the company said.
Conoco also said it is reducing its crude oil refining capacity to 2 million to 2.2 million barrels per day in 2012 from 2.7 million barrels per day in 2009 as it looks to cut exposure to a weak market for fuels.
Conoco lags its oil major peers in returns. The company has big exposure to a weak refining market, and its exploration and production assets in North America are tilted toward less-profitable natural gas.
The Houston company released a bare-bones plan to revive its finances five months ago, which included the sale of $10 billion in assets.
At the time, investors and analysts speculated that Conoco might sell part of its stake in LUKOIL, and last week Reuters reported that Conoco had decided to do so.
It is "more appropriate " for the company to use proceeds from part of its LUKOIL interest to increase shareholder value through stock repurchases, Jim Mulva, Conoco chief executive, told the company's annual meeting with analysts. But he also said it was important for the company to remain in Russia.
One reason Conoco decided to pare its interest in LUKOIL was slower-than-expected access to some projects, Conoco investor relations executive Clayton Reasor said, declining to provide any specifics.
LUKOIL would be the most likely buyer of the 10 per cent stake, which is worth $4.9 billion, analysts at Raymond James said in a research note.
LUKOIL Vice President Leonid Fedun told analysts in London that his company would not rule out buying shares from Conoco, but added that the Kremlin could oppose such a move.
"If they sell the stake back to LUKOIL, I think they might get a lower price," said Phil Weiss, oil analyst with Argus Research. He added that the process would likely go smoothly because Conoco would be selling in the open market.
LUKOIL, Russia's No 2 oil company, regards Conoco as a strategic partner and many analysts see the presence of the US major in LUKOIL's capital as a guarantee that the Kremlin treats LUKOIL more carefully than its peers.
Conoco had a number of meetings with LUKOIL and Russian authorities before the share sale plan was announced, Reasor said.
Conoco said potential dispositions in 2010 include its interests in the Syncrude oil sands project in Canada and the Rex pipeline in the US, 10 per cent of its Lower 48 and Western Canada portfolio, and its remaining gasoline retail operations.
About half of the assets will be sold in 2010, and the remainder in 2011, the company said.
Conoco also said it is reducing its crude oil refining capacity to 2 million to 2.2 million barrels per day in 2012 from 2.7 million barrels per day in 2009 as it looks to cut exposure to a weak market for fuels.