ConocoPhillips ( COP ) is the third largest oil and gas producer in the US and has nearly 10 billion barrel reserves of oil equivalent. ConocoPhillips competes with other established oil producers like Exxon ( XOM ) and Chevron ( CVX ). We have a price estimate of $68.44 on ConocoPhillips which is just ahead of current market price.
Below we take a look at the plans to divest ConocoPhillips' Lukoil holdings and assess the outlook of its oil and natural gas division. We estimate that equity affiliates, of which Lukoil contributes the most revenue, and the oil and gas businesses account for 5% and 20% of the company's value respectively.
Lukoil Stake and Equity Affiliates
ConocoPhillips had a 20% equity stake in Russia's second largest oil and gas company before deciding to sell its stake to reduce debt. Asof September 30, 2010, ConocoPhillips had sold around 70% of its Lukoil holdings for about $6.3 billion, and it intends to sell the remaining shares in the open market by the end of 2011.
ConocoPhillips has equity interests in other oil and gas fields as well as refineries across the globe through which it realizes a portion of its revenues. Conoco's major equity interests consists of its 20% stake in Lukoil and its 50% stake in Chevron Phillips. In 2009, Lukoil earnings accounted for nearly 50% of Conoco's revenues from equity affiliates.
We forecast the revenues from equity affiliates to decline to $2.3 billion by 2012 after the sale of Lukoil stake from its current level of about $4 billion.
ConocoPhillips expects to raise around $9 billion total proceeds from its Lukoil share sales and in looking at proceeds so far and expected dividends, we approximate that present value of this stake to be just shy of that estimate and so its sale will have little impact on the share price.
Outlook for Oil and Natural Gas Business
However the outlook for oil and natural gas business could push up the proceeds from the remainder of this sale, and more importantly, improve ConocoPhillips' outlook as this is an important segment for the company.
The prices of crude oil and NGLs have been quite volatile in the past couple of years after growing rapidly from $56 per barrel in 2006 to $80 per barrel in 2008. However, a difficult economic environment in 2009 caused the prices to drop to $49 per barrel.We forecast the price per barrel of crude oil and NGL based on data reported by the company, the Energy Information Administration ( EIA ) and our own estimates.
We expect the prices of crude oil and NGLs to continue to rise driven by the growth in economic activity in emerging countries and the corresponding increase in demand for oil and NGLs. We note that in 2000, China consumed 4,772 barrels of crude oil a day and this figure increased to 8,625 in 2009, an increase of nearly 81%. We anticipate that the prices of crude oil and NGLs will reach $83 per barrel by the year 2017.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.