ConocoPhillips Targets $10 Billion Assets Sale in 2012

Oil major ConocoPhillips (NYSE:COP) revealed that it will look to raise $10 billion from the sale of its assets in 2012. ^[1] CEO Mulva said that most of the assets sold will be from the company’s upstream divisions. ConocoPhillips will exit assets that yield low margins or lack any upside potential. The company’s daily production for this year is expected to fall to 1.55 million barrel /day (b/d) from the average production level of 1.62 million b/d last year. Conoco hopes that the production levels will begin to rise from 2013 and will grow at a compounded annual rate between 3% and 5% till 2016. The company has been actively pursuing opportunities to explore in the Gulf of Mexico and Alaska as well as other international prospects. Conoco competes with other major energy companies like BP (NYSE:BP) and Exxon Mobil (NYSE:XOM)

We have a $80 price estimate for ConocoPhillips, which is at a slight premium to the current market price.

Click here for our full analysis of ConocoPhillips.

High returns

ConocoPhillips plans to increase its capital expenditure on high return programs in liquids production, gas assets in international markets and other related activities. ^[2] The company is planning to cut down spending on gas production in North America where natural gas prices are close to their lowest point over the last decade owing to overproduction and weak demand. Conoco will also cut down on capital spending on refining and midstream projects as it expects margins in the sector to remain low.

The energy major will spin off its refining and downstream assets in the latter part of the second quarter of 2012. High oil prices are boosting returns from upstream operations while cutting into refining and downstream margins. The asset sales and spinoffs are expected to help the company boost its return on assets in the coming year. Higher EBITDA margins will help the company boost its return on assets in the upstream segment.

With the sale of $10 billion in assets, ConocoPhillips will complete the sale of holdings worth $30 billion in its three-year asset sale program. ^[1] The program targets the sale of assets that are non-strategic, mature and have limited growth potential. The company is using the cash generated from the assets sale to fund a share buyback program and increase its financial flexibility.

Understand how a company’s products impact its stock price on Trefis

• Natural Gas Prices Supressed on High Inventories Despite Production Cuts (trefis.com)
• ConocoPhillips Higher Production Offset by Slimmer Refining Margins (trefis.com)
• Conoco Adds to Alaska Assets as State Opens Up for New Exploration (trefis.com)

1. ConocoPhillips Expects $10 Billion of Asset Sales in 2012, Bloomberg [↩] [↩]
2. Investor Presentation, ConocoPhillips [↩]