ConocoPhillips (NYSE: COP) is sticking close to home these days, shying away from more risky endeavors abroad as it expects nearly $9 billion from sales of its interests in Kazakhstan, Algeria, and Nigeria.
Last Thursday, Conoco unveiled its future plans to concentrate on North American assets. The largest independent U.S. oil producer cut its output forecast for the year, citing unrest in Libya. The sale of its undeveloped Clyden oil sands in Canada and further assets in Trinidad and Tobago will also contribute to the forecast.
While the reduced forecast may appear to be a black eye for Houston-based Conoco’s third quarter results, it’s important to note that the company also reported a better-than-expected 39 percent boost to profits, according to Reuters, due in part to higher oil and natural gas prices. Third quarter profits rose from $1.8 billion last year to $2.5 billion this year.
Selling Oil Assets
You can’t really argue with Conoco for making these moves. There is a tremendous amount of added risk when we look overseas considering the political unrest and conflict that can impede production. And who needs the added headache from assets abroad when there is a shale boom taking place right here at home?
ConocoPhillips is essentially removing the risk from its portfolio.
The company cited “ongoing production disruptions” in Libya, but production will still be in the range of 1.505 million to 1.515 million barrels of oil equivalent (boe) per day from its operations – only a slight drop from its original 2013 forecast of between 1.515 and 1.530 million boe per day, according to Reuters.
Libya usually accounts for about 50,000 barrels each day, though this has presently been reduced to zero as unrest is ongoing. There is no end in sight and no timetable for when production might pick back up.
For the short term, at least, Libya holdings will likely just sit idle. A sale would be next to impossible until the cloud of uncertainty is removed. Libya as a whole has seen its oil exports plummet to about 10 percent of its capacity since civil war broke out in 2011. Recently, things have been shaken up once more with renewed protests that have put a stop to operations.
While Conoco’s Libyan interests just sit there, the company has been able to sell its minority interest in the developing Kashagan project in Kazakhstan. The project as a whole, lying in the Caspian Sea, is believed to be the world’s most expensive oil field.
Conoco has also been able to strike up deals for its Algerian assets with Indonesian state oil firm Pertamina and its Nigerian assets with Oando.
Meanwhile, back in the U.S., Conoco is sitting pretty with production from the Eagle Ford, Bakken, and Permian shale deposits showing a 40 percent hike in production for the third quarter.
The company’s golden egg belongs with its investment in North Dakota’s Bakken. The state itself will double its production to 1.6 million barrels per day by 2017, according to The Montana Standard. ConocoPhillips has 240 operating wells and 11 drilling rigs in western North Dakota.
Where it loses out on its sale of its Clyden oil sands in Canada, it is picking right back up with further exploration in Canada’s Northwest Territories. Canada’s National Energy Board approved the company last Wednesday, and this will mark the first occasion that fracking has been allowed in Canada’s far north.
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North American Oil
ConocoPhillips isn’t the only one pulling out of some rather unsettling assets abroad. U.S. rivals like Hess Corp (NYSE: HES) are also selling off assets that face similar distractions and focusing closer to home.
Hess Corp, which also reported third-quarter results this week, cited unrest in Libya as the reason it showed a lower-than-expected production and profit report.
Exxon Mobil (NYSE: XOM) is also scaling back operations in Libya and other foreign investments.
Mid-level players like Marathon Oil (NYSE: MRO) are also focusing on U.S. assets.
We only have to keep our eyes on what’s happening in North America and the shale boom to really know how these companies and others are faring. This will give us investors a more reliable result – something we can count on to come through in the short and long term.
ConocoPhillips, which formed as a merger between Phillips 66 (NYSE: PSX) and Conoco roughly a decade ago, has reversed that merger. Now it will be ConocoPhillips focusing on exploration and production, while Phillips 66 heads operations like retail gas stations and refineries.
What we must focus on and follow closely is the state of oil prices. As long as prices remain in their current state, ConocoPhillips will be active in North America for many years to come, and results will continue to rise.
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