ConocoPhillips Plans to Sell $10 Billion of Assets

ConocoPhillips Plans to Sell $10 Billion of Assets

Oct. 7 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil company, said it will sell about $10 billion of assets in the next two years and cut capital spending in 2010 to reduce debt and increase returns on capital.

The divestitures may include oil and natural-gas properties and refineries, Houston-based ConocoPhillips said today in a statement. Proceeds will be used to help the company achieve its target debt-to-capital ratio of 20 percent to 25 percent, according to the statement.

ConocoPhillips, which said it will cut capital spending 12 percent to $11 billion in 2010, is still grappling with debt taken on with its 2006 acquisition of gas producer Burlington Resources Inc. The company’s debt-to-capital ratio was 34 percent as of June 30. It’s working to end a two-year slide in output as slumping gas prices drag down profits.

“The company is trying to do something, scrambling to find a way to enhance shareholders’ value,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who has a “market perform” rating on ConocoPhillips shares. “Reducing capital spending as well as selling assets will give you more breathing room financially.”

ConocoPhillips also said it raised its quarterly dividend to 50 cents a share from 47 cents. The dividend is payable Dec. 1 to stockholders of record at the close of business on Oct. 30. The increase is the company’s first since February 2008.

Fuel Demand Slumps

ConocoPhillips rose $1.29, or 2.7 percent, to $49.70 in New York Stock Exchange composite trading. The stock, which has eight buy ratings, nine holds and one sell recommendation from analysts, had dropped 6.5 percent this year before today.

Prices of gas fields and refining assets are depressed amid slumping fuel demand, said Mark Gilman, an analyst at Benchmark Co. in New York who rates ConocoPhillips shares at “hold” and owns none.

“I’m from the old school -- buy low, sell high,” Gilman said. “At least as it relates to certain parts of the portfolio, that would be difficult in the current environment.”

ConocoPhillips Chief Executive Officer Jim Mulva agreed to buy Burlington, also based in Houston, for $36 billion in December 2005, the day before gas prices hit a record at $15.78 per million British thermal units. Gas futures traded as low as $2.41 on the New York Mercantile Exchange last month.

Company spokesman Charlie Rowton declined to comment on the assets that ConocoPhillips plans to sell.

Record Loss

In January, ConocoPhillips reported a record quarterly loss of $31.8 billion after recording $34 billion in costs to reflect a drop in asset values. The company had more than $30 billion in debt and less than $1 billion in cash as of June 30.

Some of the gas properties ConocoPhillips acquired in the Burlington transaction might be attractive to large independent producers, said Ted Harper, who helps oversee about $6.1 billion in assets at Frost Investment Advisors in Houston.

Deutsche Bank said in a report this week that ConocoPhillips may be able to sell its 20 percent equity stake in Russia’s OAO Lukoil and reduce its refining holdings. The report also said shedding former Burlington assets and Asian properties would make sense.

The divestiture plan “capitalizes on our large resource base and our strong portfolio of projects, while providing flexibility for potential changes in business conditions,” Mulva said in today’s statement. “We will replace reserves and grow production from a reduced, but more strategic, asset base.”

By increasing its dividend even as it sells assets and reduces capital spending to cut debt, ConocoPhillips is telling investors “don’t write us off,” said Oppenheimer’s Gheit.

“It sends a message that we are confident of our financial flexibility, which is positive,” Gheit said.

Exxon Mobil Corp. and Chevron Corp. are the biggest U.S. oil companies.

bloomberg