ConocoPhillips to halve Lukoil stake, divest $10-billion in asets to cut debt

25 Mar 2010

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Oil company ConocoPhillips will sell half its stake in Russian oil company Lukoil and will also divest an additional $10 billion in assets over the next two years in order to reduce debt and enhance shareholders return.

ConocoPhillips, the third-largest US oil company said yesterday that it will sell half of its 20-per cent stake in OAO Lukoil, Russia's second biggest oil firm in two years and use the money to fund a $5-billion share-buyback programme and a 10-per cent increase in dividends.

''We are focused on creating and delivering value to our shareholders,'' said Jim Mulva, chairman and CEO of ConocoPhillips. ''We are taking decisive action to sell assets, reduce debt, build on our record of shareholder distributions, and improve returns while growing production and reserves per share.''

Houston, Texas-based ConocoPhillips will get approximately $5 billion from selling half its stake in Moscow-based Lukoil at current market price, but the partial exit may bring to an end a successful partnership between the Russian and the US oil majors.

ConocoPhillips had said in October that it would divest assets worth $10 billion over the next two years in order as part of its restructuring plan in the wake of the global economic meltdown, but had said that it would keep its stake in Lukoil intact.

Although Lukoil, the only private Russian oil company whose share capital is dominated by minority stakeholders, has a pre-emptive right to buy back shares held by ConocoPhillips, it said that it has no intention of doing so.

ConocoPhillips, which had 2009 revenues of $149 billion, will sell approximately half of the assets this year and the remainder in 2011. It will use a portion of the proceeds to reduce debt.

In 2010, the oil major plans to sell its ownership interest in Syncrude and the Rex Pipeline, 10 per cent of its Lower 48 and Western Canada portfolio and its remaining US marketing assets.

The company expects that 60 to 80 per cent of the proceeds generated will come from the Exploration and Production (E&P) segment and by the end of 2011, the asset sales will reduce production by 80,000 to 120,000 barrels of oil equivalent a day and reserves will be cut by 400 million to 600 million barrels of oil equivalent.

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