ConocoPhillips aims to sell up to $8 billion in gas assets

November 10, 2016 7:44 AM EST

A Conoco gasoline station in St. Louis, Missouri January 14, 2015. REUTERS/Kate Munsch/File Photo


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By Ernest Scheyder

(Reuters) - ConocoPhillips (NYSE: COP), the largest U.S. independent oil producer, will sell up to $8 billion in natural gas assets and trim its capital budget by 4 percent next year to provide funds to bolster operations, executives said on Thursday.

The moves highlighted not only the energy industry's increasing push for efficiency gains that reduce the cost of drawing oil and natural gas from the earth but also low commodity prices, which have hampered Conoco and peers the past two years.

Shares of the Houston-based company fell about 1 percent to $45.21 in afternoon trading as U.S. oil prices fell about 1 percent.

The asset sale alone reflects a bold move by Chief Executive Officer Ryan Lance to reduce the company's $28.7 billion debt load.

"We're a very large company and those assets aren't big for us," Lance said in an interview. "We recognize that we need to accelerate the value proposition for some investors and accelerate the removal of debt from the balance sheet."

Conoco plans to sell $5 billion to $8 billion in North American natural gas assets, a divestiture that is massive in its size and scope. For example, Chesapeake Energy Corp (NYSE: CHK), the second-largest U.S. natural gas producer, has a $5 billion market valuation.

The spending reduction comes after Conoco more than halved its budget last year. Indeed, its 2015 capex had eclipsed $10 billion.

"You can't count on rising commodity prices to bail out your business model," Lance said. "You have to position your business for the commodity price cycles."

Lance, CEO since 2012, said the spending cuts, asset sales and other steps should help the company be profitable with Brent oil prices of $50 per barrel. Brent traded at $45.96 on Thursday.

Most of the budget next year will be spent on shale projects in the contiguous United States, with some focus on Alaska and Europe, as well as maintenance of existing operations.

The focus is smaller than earlier this decade, when ConocoPhillips operated in more than 28 locations around the globe. Today it operates in about 14, a smaller portfolio that executives said would further help focus capital.

The spending should result in 2017 production of 1.54 million to 1.57 million barrels of oil equivalent per day, which would be a slight increase from estimated 2016 output, executives said.

The company also announced a $3 billion share repurchase program. The buybacks will start this quarter, the company said.

(Reporting by Ernest Scheyder in New York; Editing by Jonathan Oatis and Lisa Shumaker)



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