The Rising Influence of Rising Affluence

[DewDiligence]

ConocoPhillips to Rein in Growth

[Does this company have any idea what it is doing? A few months ago, management told investors it would definitely retain its 20% stake in Lukoil; now, COP says it will sell half of it as part of its previously announced asset dump (#msg-42341446). The corporate motto seems to be, “Buy at the top, sell under duress!” Moreover, it’s curious that a company in a commodity-sensitive business that’s loaded with debt is promising an aggressive buyback of its own stock and a hike in the dividend.]

http://online.wsj.com/article/SB20001424052748703312504575141484164074938.html

›By BEN CASSELMAN
MARCH 25, 2010

The acquisition spree at ConocoPhillips is over.

Jim Mulva, the 63-year-old chairman and chief executive, spent a decade building the Houston-based company into a global energy giant, buying assets and companies around the world, often at steep prices [LOL—quite an understatement].

But on Wednesday, Mr. Mulva said Conoco, the third-largest U.S. oil company by revenue and market capitalization, must now make do with what it has. Finding it increasingly difficult to win access to new sources of oil and facing stiff competition for the oil that is available, the company will pull back from its strategy of rapid growth and instead focus on producing the oil and gas it already controls.

“We’re still going to grow the company, but not as aggressively as we have in the past,” Mr. Mulva said in an interview. “We just said, ‘The business environment is different, let’s focus on what we already have accumulated in terms of resources.’ ”

Still, analysts continue to watch how Conoco tries to compete with larger, better-funded rivals. Conoco in the fall said it would sell $10 billion worth of assets over two years and cut its capital spending by 23% from 2008 levels. At a meeting for analysts in New York on Wednesday, the company gave investors some of its first details of its restructuring plans.

Conoco will likely sell its 9% stake in Canadian oil-sands producer Syncrude Canada Ltd. and its 25% stake in the Colorado-to-Ohio Rockies Express Pipeline, as well as other assets in the U.S. and Canada. Conoco will also sell half its 20% stake in Russian oil giant OAO Lukoil and has delayed indefinitely a planned upgrade of a big refinery in Germany.

The company said the sales will generate about $15 billion over the next two years. The funds will be used in part to buy back $5 billion in stock, raise its dividend 10% to 55 cents a share and pay down debt, dropping its debt ratio to 20% from 31%.

The sales, which represent about 100,000 barrels a day of oil production and 500 million barrels of proved oil reserves, will leave Conoco smaller in the short term. But Mr. Mulva and other executives said in the long term the company will be nimbler, more profitable and more focused on producing oil than refining it into gasoline.

“We asked ourselves, ‘What is growth?’ ” Mr. Mulva said. “Growth could be viewed as just growing absolute volumes, but we felt that in this challenging environment what’s really important is to grow the value of the company.”

The strategy is a reversal for Mr. Mulva, who as CEO of Phillips Petroleum Co. engineered the 2002 merger that created ConocoPhillips, then oversaw six years of deal making, including the Lukoil partnership in 2004, the $35 billion acquisition of U.S. gas producer Burlington Resources in 2006 and an $8 billion liquefied-natural-gas joint-venture in Australia in 2008.

Those deals vaulted Conoco into the ranks of the world’s largest oil companies, but they left it with far more debt than its competitors. That left Conoco vulnerable when energy prices tumbled in late 2008. While larger rivals like Exxon Mobil Corp. and BP PLC took advantage of the downturn to buy assets from weaker competitors, Conoco slashed spending and laid off workers. “They’ve bought high and sold low,” said Philip Weiss, an energy analyst at Argus Research.

Mr. Mulva, however, said the acquisitions gave the company a strong base of assets that it can now tap for years to come. And he said that although Conoco carries more debt than its competitors, other companies face the same challenges of limited access to oil reserves and increased competition.

Yet analysts question whether the company will be able to get a fair price for its assets at a time when natural-gas prices are low and say upcoming Conoco projects don’t look as attractive as those of some competitors [no kidding].‹