The Houston-based company also reported a 71% drop in earnings because of lower commodity prices and a weak environment for refining operations.
Speaking to analysts during an earnings conference call, ConocoPhillips CEO Jim Mulva said international oil companies in [image-nocss] the years ahead will have to look at different business models, including being smaller or developing different relationships with national oil companies that will allow access to new oil reserves.
"The business environment has quite dramatically changed in the last 12 to 18 months," Mulva said, referring to tighter credit markets amid the global recession. "Some will say what we're doing essentially is that we're shrinking to grow. That would be a fair assessment."
ConocoPhillips' restructuring plans represent a major change for an oil and gas company that pursued big acquisitions and racked up debt during boom times, according to the newspaper report. That came to an abrupt halt as the global recession ensued. The company earlier this year cut thousands of jobs and slashed capital expenditures, the only major integrated U.S. oil company to do so.
"Conoco is making clear that getting bigger is not helping international oil companies," Fadel Gheit, analyst at Oppenhemier & Co. Inc., New York, told WSJ. "Basically it's accepting that national oil companies are now in the driver's seat and that international oil companies will have to accept their terms."
Major oil companies are having trouble increasing production and reserves in the dwindling oil provinces they control. As a result, the companies are finding they need to strengthen ties with national oil companies, which own most of the world's untapped resources.
ConocoPhillips, the third-largest U.S. oil company by market capitalization after Exxon Mobil Corp. and Chevron Corp., has been the hardest hit of the so-called majors by the recession, because of its comparatively large refining and North American natural-gas segments. [See ExxonMobil's quarterly report elsewhere in this issue of CSP Daily News.]
To quell investor discontent and reduce debt, ConocoPhillips announced a two-year reorganization plan that includes the sale of $10 billion in assets.
Speculation was rife among analysts that the company may sell its 20% share in Russia's OAO Lukoil Holdings, according to the report, but Mulva said the reorganization plan doesn't include the sale of that stake. He also said the company doesn't plan to sell any major refinery.
But ConocoPhillips said it will sell its 9% stake in the Syncrude oil-sands project in Canada early next year. The company also plans to sell 10% of its assets in Canada and the lower 48 states, some of its North Sea natural-gas properties, and some small refineries, pipelines and terminals in the United States.
ConocoPhillips will remain an integrated oil company, a model in which the losses in the exploration and production segment are offset by gains in the refining and marketing businesses, Mulva said.
He added that ConocoPhillips, one of the world's largest refiners, doesn't expect to shut refineries permanently despite the sharp decline in profits and falling demand for fuel. The company doesn't plan to sell any major refinery at this time because such a sale would fetch little value, but it could look at disposing some of these assets in 2012 and 2013, when the company expects the outlook for the refining business to improve.
ConocoPhillips, however, will try to dispose right away of "less sophisticated" and "less competitive" refineries, Mulva said.
The company reported profit of $1.5 billion, or $1 a share, down from $5.19 billion, or $3.39 a share, a year earlier. Conoco attributed the latest results to weak refining margins and lower oil and natural-gas prices. The latest period included $700 million from asset sales. Revenue fell 42% to $41.31 billion.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.