UPDATE: ConocoPhillips: Looking to Reduce APLNG, Oil Sands Stakes
--ConocoPhillips planning to reduce exposure to major high cost projects in Australia and Canada to cut costs
--ConocoPhillips aims to increase its dividend as it brings in cash
--ConocoPhillips will devote 15% of capital budget to exploration
(Updates with additional detail, comments from conference call.)
By Alison Sider
ConocoPhillips (COP) plans to sell some parts of its stakes in expensive developments such as the Australia Pacific
LNG project and in the Canadian oil sands in order to steer more cash to its U.S. shale plays, Chief Executive Ryan
Lance told analysts Thursday.
The company has already announced plans to shed billions of dollars in assets as it seeks to focus on fast-growing
shale plays in the U.S. and bring in much-needed money, but the new potential sales could generate more cash and would
free up cash for higher-margin projects. Mr. Lance said Thursday at its annual analyst meeting that ConocoPhillips will
also "lighten up" on these long-term projects, which come with high price tags, in order to keep costs down.
The announcement underscores Conoco's transformation in the midst of an energy revolution unleashed by hydraulic
fracturing. Fracking, as the technique is known, has allowed oil and gas to be unlocked from tight geological formations
and revitalized the U.S. energy industry. Though the formations were first explored by smaller independent producers,
now even large international companies such as Conoco and Marathon Oil Corp. (MRO), which have traditionally focused on
massive international developments, are shifting their focus to domestic energy.
One of the challenges ConocoPhillips faces is to bring in enough cash to cover its operations and dividend. So far it
has worked toward this by selling assets that aren't essential to its strategy, such as operations in Nigeria, Algeria
and Kazakhstan. But Mr. Lance said the company is on track to increase production in low-risk, high-reward areas such as
Mr. Lance said the company is targeting a $16 billion annual capital budget for the next five years, which includes
about $2.5 billion set aside for exploration in unconventional formations from Colorado to Colombia.
Matt Fox, executive vice president for exploration and production, said costs have crept up in Australia by about 7%
in Australian dollars, which is compounded by the changing exchange rate. The project is set to deliver first cargo by
mid-2015, he said.
The company has a 37.5% stake in the project. Even with some reduction in the company's stake there, the APLNG project
is expected to add 80,000 barrels of oil equivalent per day by 2017, Mr. Fox said.
ConocoPhillips's production in the Canadian oil sands is expected to double in the same period, even assuming the
company will dilute its stake there, Mr. Fox added.
ConocoPhillips split from its refining arm last year, and Thursday's analyst meeting was the company's first as an
independent exploration and production company. But as activist investors have taken aim at what they see as overly
large, unfocused energy producers, ConocoPhillips has faced criticism from some analysts who say the company could stand
to whittle itself down further.
The company has said it believes its global reach is a positive, and that its size gives it the technological
expertise to replicate its success around the world.
"We think our diversification and scale are a competitive advantage," Mr. Lance said, noting that the company is not
dependant on one formation or one type of asset.
But analysts were skeptical as to whether ConocoPhillips can deliver on all its plans and keep money flowing to
shareholders. Already one of the highest in the industry, Mr. Lance said maintaining and even expanding ConocoPhillips's
dividend is one of the company's top priorities.
"The companies you compare yourself to pay dividends out of cash flow," noted Bank of America Merrill Lynch analyst
Doug Leggate during the meeting. "Why is the dividend still a core priority?"
Jeff Sheets, ConocoPhillips's chief financial officer, said the company's cash flow is growing "to where we can fund
the capital program and a dividend higher than where it is today." He said "high-margin growth" will add $6 billion in
additional cash flow by 2017. At the end of 2012, ConocoPhillips reported cash flow from operations of $13.5 billion.
"We are a company that believes that a significant part of what shareholders are looking for is a dividend they can
count on," he said.
Write to Alison Sider at email@example.com
Corrections & Amplifications
This was corrected at 10:55 a.m. EST because the original incorrectly stated in the 11th paragraph that ConocoPhillips
is dependent on one formation or asset type. The article should have said the company is not dependent on one formation
or one type of asset. Also, in the second paragraph, the story omitted the word "down." It should have stated that
ConocoPhillps is shedding some high costs assets to keep costs down.
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