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Today’s post puts Houston oil giant, ConocoPhillips, under the spotlight.
The Houston oil giant, ConocoPhillips has been expanding and is one of the success stories emerging from the recessionary times. The experience of the hard recession has persuaded the company to take a hard look at its operations and the decision was previously made to strip away non-essential businesses and operations. It is the scale of the sell-off of assets which has heads turning – over $17 billion worth!
The sell-off program will take up to 2 years to complete and the rationale behind the asset sales will be to pay off debt and provide more in0house financing for capital projects. Looking deeper into the numbers and the company, which is the 3rd largest oil company in country, is adopting a tactic of shrinking in order to expand. The latest sell-off announcement is in addition to the one made in 2009. At that time, the company announced a $10 billion sell-off of assets which is expected to be completed by the end of 2011. The current round of sell-offs is expected to take place through to the end of 2012.
By shedding operations which have created high exposure to the high risk oil refining business, ConocoPhillips is expecting to improve share holder returns. Issues over oil supplies and the cost of raw materials have also made a mockery of oil refining business projections over the last couple of years, leading to enormous loss-making potential.
To put the asset sale into perspective, ConocoPhillips has assets in excess of $156 billion. Assets likely to be put up for sale include oil and gas facilities and rights in western Canada, Germany and the United States. In particular, oil refining capacity will be reduced from $2.7 million barrels in 2010, down to 1.8 million barrels by 2013. Oil production will also be reduced in the short-term, from 1.75 million barrels per day (in 2010) down to 1.6 million per day (in 2013), though it is then expected to rise as new oil projects come on-stream. ConocoPhillips has already sold a 20% state in the Russian company, Lukoil for $9 billion, though this is not included in the existing or newly-announced sell-off plans.
Stock markets have responded positively to the news: the share price of ConocoPhillips has seen a 50% increase in the past 12-months and rose a further $1.32 per share on the new sell-off announcement.
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