ConocoPhillips (COP) is all set to divest its Nigerian assets to bring billions of dollars for the largest independent oil and natural-gas producer in the U.S.
The company’s Nigerian properties – which accounted for less than 3% of ConocoPhillips’ daily output as of 2011 – comprises onshore, offshore oil and gas fields, and a stake in its LNG Brass facility. The divestitures of these assets are likely to support ConocoPhillips to raise as much as $2.5 billion and even more if those are sold separately.
The onshore assets are considered to be the most important parts of the to-be sold properties and are fully functional. Conoco has shares in the four onshore leases that contributed 45,000 barrels of oil equivalent on a daily basis last year.
However, the value for the Brass project is still uncertain as it is in its early stages. Additionally, the company also plans to construct a liquefied natural gas facility in the Niger Delta. The company also holds interest in the Uge oil project off Nigeria’s coast.
The U.S. oil behemoth is looking to divest $8 billion to $10 billion within a year mainly to concentrate on improving returns. This latest intention of Conoco will likely draw attention from Nigerian as well as Asian companies that include Conoil and Oando, China Petroleum and Chemical Corporation (Sinopec or SNP), Oil and Natural Gas Corporation (“ONGC”) of India and Korea National Oil Corporation (“KNOC”).
Recently, ConocoPhillips reported lower-than-expected first quarter 2012 adjusted earnings, mainly due to lower production volume. Although, the latest asset sale program may again hinder the company’s production volume, it will facilitate it’s focus on the three-year strategic operation that includes large-scale share buybacks. The U.S. oil company intends to use the proceeds from the sale for its share repurchase program.
ConocoPhillips has already separated its refinery unit, Phillips 66 (PSX) and became two leading, independent energy companies, ConocoPhillips and Phillips 66. Although we remain positive on the outlook for the new ConocoPhillips post-split and its ability to generate free cash flow by unlocking capital tied to non-core assets, we remain on the sidelines considering its sensitivity to changes in the crude oil price, as well as geopolitical risks associated with international operations and operational challenges.
Hence, we believe that ConocoPhillips’ shares will perform in line with the broader market and maintain our long-term Neutral recommendation.
The company currently retains a Zacks #4 Rank, which is equivalent to a short-term Sell rating.Read the Full Research Report on COP
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