By Edward Klump and Ayesha Daya
April 28 (Bloomberg) -- ConocoPhillips, the third-biggest U.S. oil company, pulled out of a Middle East project for the second time in a week, saying it decided against going through with the Shah Gas Field development with Abu Dhabi.
The company, which would have been a 40 percent stakeholder in a Shah joint venture with state-owned Abu Dhabi National Oil Co., didn’t give an explanation for the decision in a statement today announcing its exit. Abu Dhabi National will go ahead with the $10 billion project, said a person who asked not to be identified because the decision hadn’t been made public.
ConocoPhillips, which announced plans in October to sell $10 billion in assets to cut debt, said April 21 that it would drop out of the Yanbu refinery development with Saudi Arabia’s state oil company. The company said then that Yanbu didn’t fit with its strategy of scaling back its presence in refining and tightening its focus on oil exploration.
“It would appear that they’re rethinking where they stand in the gas markets at this point in time,” said James Halloran, a consultant at Financial America Securities in Cleveland. “I think they look at themselves as possibly trying to be oilier, which is the key thing these days.”
Oil has outperformed gas in U.S. futures trading this year and last. Crude also is more than three times as valuable as gas, relative to the energy content of both commodities, according to a Bloomberg calcluation.
Shell’s Interest Dims
ConocoPhillips rose $1.01, or 1.8 percent, to $58.55 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has nine buy ratings from analysts, eight holds and three sells.
Oil-exporting nations such as the United Arab Emirates are seeking to boost production of natural gas to fuel domestic power generation and factories. The country imports gas from Qatar and is developing nuclear power plants to meet energy demand, which is expected to double by 2020, according to government studies.
Abu Dhabi, an oil-rich United Arab Emirates sheikdom, chose ConocoPhillips for the Shah project after considering bids from companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and Occidental Petroleum Corp.
Shell, which was keen to work on the venture at the time, is less interested now, Chief Financial Officer Simon Henry told investors today on a conference call.
Sour Gas
The Shah development is scheduled to start production in the second or third quarter of 2014, Saif Ahmed Al-Ghafli, chief executive officer of Abu Dhabi Gas Development, told reporters last month. The project will process 1 billion cubic feet of sour, or high-sulfur, gas a day into more than 500 million cubic feet of fuel and 10,000 tons of sulfur daily, Al-Ghafli said.
Ryan Lance, a senior vice president for international exploration and production at ConocoPhillips, said at a March analyst meeting that the company needed to know what the project would cost. He said ConocoPhillips would make a value-based decision. John McLemore, a company spokesman, declined to provide any comments beyond today’s statement.
Pulling out of the Shah project is the right move for ConocoPhillips, even it affects future business in the Middle East, said Philip Weiss, an analyst at Argus Research in New York who has a “hold” rating on the company’s shares and owns none. He said ConocoPhillips should be focused on financial discipline.
“If this deal keeps them from getting other projects but those projects don’t meet the return guidelines anyway, does it really matter?” Weiss said.
Shift to Exploration
ConocoPhillips is scheduled to report first-quarter earnings tomorrow. The company wants oil and gas exploration and production, or upstream, to represent as much as 85 percent of its portfolio, up from about 70 percent currently, Chief Executive Officer Jim Mulva said in a March 24 presentation.
Halloran, the Financial America Securities consultant, said ConocoPhillips has figured out the sort of projects it doesn’t want to do, if not the precise direction it’s going.
“By force, it sort of says they’re going to become more of an upstream development exploration company, but how are they going to go about doing that?” Halloran said. “We haven’t figured that out yet because it’s very tough for anybody to do that.” ConocoPhillips is trying to clean up its balance sheet and may be readying itself for a possible merger as it exits projects with low returns, said Robbert Van Batenburg, head of equity research at Louis Capital Markets in New York. “It’s a super major, but it’s at the end of the list,” he said. “I can them smell them trying to force the hand of a would-be buyer.”
Source: http://www.businessweek.com/news/2010-04-28/conocophillips-backs-out-of-abu-dhabi-gas-project-update3-.html
Comments
Post a Comment