Replies to post #391 on The Rising Influence of Rising Affluence

[DewDiligence]

ConocoPhillips On The Block?

[More on the same topic from Forbes, with some speculation on M&A possibilities.]

http://www.forbes.com/2009/10/07/conocophillips-oil-mergers-business-energy-conocophillips.html

›by Christopher Helman
10.07.09, 4:16 PM ET

ConocoPhillips announced Wednesday that it planned to sell $10 billion in assets, slash capital spending to $11 billion next year, boost its dividend and pay down debt.

Is this window dressing ahead of putting the company up for sale?

The third-largest U.S. oil company, with production of 1.78 million barrels of oil (and gas equivalents) per day, is probably too big to be bought. But it could be an excellent merger partner for a mid-sized oil company with a strong exploration team.

Last May the head of ConocoPhillips' upstream division, James Gallogly, left the company. The two guys who had the job before Gallogly had also departed in recent years. ConocoPhillips Chairman and Chief Executive James Mulva plans to retire in a couple years. This has led to analyst concerns about the depth of the company's bench.

Oil industry dealmakers have been predicting this year that the U.S. recession won't end without meaningful consolidation among oil companies. Names bandied about include the big independents Anadarko Petroleum, Apache Energy, Devon Energy, each of which has about half the market cap of ConocoPhillips ($73 billion). Another potential match-up could be Marathon Oil, which likewise has sizable refining operations.

It's been a tough year for ConocoPhillips. In January it took $34 billion in writedowns on its 20% stake in Russia's Lukoil and its 2005 acquisition of U.S. natural gas player Burlington Resources. It also overpaid in a $8 billion deal for gas assets of Australia's Origin Energy. With gas prices plunging further since then, bottoming out below $3 per million BTU last month, neither deal has looked smart.

That's not to say ConocoPhillips doesn't have its share of sterling assets. Deutsche Bank analyst Paul Sankey has drawn attention in recent days for a 61-page research report in which he says that Conoco's long-lived, mature oil fields will require little new investment but generate enormous cash flows once oil spikes again in the years to come. Conoco gets roughly 25% of its production from fields in Lower 48, where it has more oil and gas production than any other company, with 13,000 wells in the San Juan Basin of Colorado and New Mexico and 1,800 wells in the Lobo field of South Texas.

But the biggest opportunities lie overseas. For the past decade ConocoPhillips has been part of the consortium developing the Kashagan field in Kazakhstan at a cost upward of $40 billion. With first production scheduled for 2012, Kashagan is expected to pump 1.5 million barrels per day within a decade. In Qatar, the company is building a mammoth liquefied natural gas project to help tap Qatar's North Field, the biggest gas field in the world. In Queensland, Australia, the company hopes to apply lessons learned over 50 years in the San Juan basin to similar coal-bed methane plays.

So what is Conoco likely to jettison in its $10 billion of planned sales? International operations in higher risk areas. Last week the junta-led government of Myanmar reportedly sent troops to the border with Bangladesh after complaining that offshore blocks Conoco was exploring for Bangladesh were actually in Myanmar waters. What oil company wants to deal with that headache?

Likewise, last week it sold its rights in a Venezuelan gas field back to state-run Petroleos de Venezuela (Pdvsa). It also has an oil venture in Libya with Marathon Oil and Amerada Hess. Yet Deutsche Bank's Sankey suggests that the best way for Conoco to free up cash would be to sell its 20% stake in Lukoil back to the company. Further, says Sankey, Lukoil could be a willing buyer for Conoco's European refineries, as the Russian major has recently made refining investments there.

Conoco is the fifth-largest refiner in the world. That's a terrible business right now, with fuel demand plummeting, and it's unlikely that any buyers would materialize for those assets until after the uncertainty surrounding potential carbon cap-and-trade legislation is resolved.

The drag on profits from those refining assets would likely scare off the upstream pure plays like Anadarko and Apache from linking up with ConocoPhillips. But it could very well appeal to Marathon Oil, which recently shelved a plan to separate its upstream and downstream into two separate companies.

Marathon, which has a lot of international operations for its size ($23 billion market cap), is a partner of Conoco's in Libya and on an LNG terminal in Alaska. Marathon's LNG project in Equatorial Guinea uses Conoco technology. For added synergy, both companies' headquarters are close by, on the west side of Houston. Why not?‹

[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].‹

[DewDiligence]

Musings on ConocoPhillips

COP held its annual Investor Day webcast today; the company’s PR is at http://finance.yahoo.com/news/ConocoPhillips-Continues-bw-3483036831.html?x=0&.v=1 and the webcast slides (113 pages) are at http://www.conocophillips.com/EN/investor/presentations_ccalls/Documents/Analyst%20Meeting%202011%20Slides%20color.pdf .

The only new news is that COP plans an additional $5-10B of asset sales during 2011-2012; this amount is over and above the $10B of asset sales COP earmarked 1.5 years ago (#msg-42341446). To date, COP has sold $7B of hydrocarbon assets and has liquidated its stake in Lukoil for about $8B. Thus, COP’s total asset sales since announcing the change in strategy 1.5 years ago has been about $15B and will come to $20-25B by the end of 2013 if the company follows through on its plan.

All told, I’m unimpressed with what COP is doing. COP does have some nice assets in Asian LNG, Canada’s oilsands, and liquid-rich US shales; however, I think COP’s management is second-rate (compared to say, XOM and CVX) and I do not trust them to make good decisions for shareholders. The huge asset sales COP is now undertaking would not have been necessary if the company had not overpaid for various acquisitions a few years ago.

If anyone here thinks otherwise, please let me know!