ConocoPhillips to sell Kazakhstan project stake for $5 billion
BY JIM POLSON & EDWARD KLUMP Bloomberg News
Tuesday, November 27, 2012
11/27/12 at 4:25 AM
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Original Print Headline: ConocoPhillips to sell Caspian Sea stake
ConocoPhillips intends to sell its 8.4 percent interest in Kazakhstan's Kashagan project for about $5 billion to Oil & Natural Gas Corp., India's biggest energy explorer.
ConocoPhillips and ONGC Videsh, the New Delhi-based company's international arm, expect to close the deal for a stake in the North Caspian Sea Production Sharing Agreement during the first half of next year, according to a statement Monday. The project has lagged behind schedule and has cost nearly twice as much as initially projected.
The sale will bring to about $7 billion the proceeds raised by Houston-based ConocoPhillips, which has targeted $8 billion to $10 billion of sales from 2012 to 2013. The company has sought to remake itself during the past three years by selling assets and spinning off its refining business. ConocoPhillips expects a charge of about $400 million during the fourth quarter related to the transaction.
"Strategically, this sale makes sense as it was a non-operated asset" that gave ConocoPhillips limited control, RBC Capital Markets analysts said in a report on the Kashagan deal. "Additionally, there will likely be minimal if any tax impact as the project is being sold for a price slightly below book value."
ConocoPhillips' latest move comes after it announced a plan to overhaul the company in October 2009 by selling assets, reducing debt and increasing the dividend. The company also repurchased shares in years that followed. By January 2012, the company said it had generated $10.7 billion in divestiture proceeds, as well as $9.5 billion from selling shares in OAO Lukoil, a Russian oil producer.
The asset sales program expanded, and with the Kashagan sale ConocoPhillips will have received about $27 billion from shedding properties and Lukoil shares since it announced the program.
"They're divesting a low-return asset and redeploying funds into higher return areas," Douglas Terreson, a Fairhope, Ala.-based analyst for International Strategy & Investment Group, said in an interview
The Kashagan sale may help ConocoPhillips fully fund its spending and dividend plans in 2013 and possibly through 2014.
After costing about $46 billion, almost double early estimates, and running eight years late, Kashagan output may start in March. The Caspian Sea field, a high-pressure reservoir with lethal levels of hydrogen sulfide lying 44 miles from shore, is one of the world's biggest finds of the past four decades.
Production from the first stage of the project is expected to reach 370,000 barrels a day.
Kazakhstan and Kashagan's partners are considering a proposed second phase of the project, which would increase output to about 1 million barrels a day.
ONGC has been seeking additional stakes in Kazakhstan to replace production declines. Kazakhstan and ConocoPhillips' partners have the right of first refusal on the sale.
Kazakhstan energy officials weren't available for comment.
North Caspian Sea Operating Co. BV operates Kashagan. Partners include Eni SpA, Exxon Mobil, KazMunaiGaz, Royal Dutch Shell Plc. and Total SA, each with 16.8 percent, according to ConocoPhillips' website.
On April 30, ConocoPhillips spun off refining, chemical and pipeline assets to create Phillips 66. That left ConocoPhillips as the largest U.S. independent oil and natural gas producer by market value, meaning it doesn't have refineries or a chemical business.
The company plans compound annual growth rates of 3 percent to 5 percent in production and margins in future years, while keeping a strong dividend.
Shares of ConocoPhillips rose 0.2 percent to $56.80 at the close in New York.
Associated Images:
Part of the Kashagan oil drilling project operates on a man-made island in the Caspian Sea off the coast of Kazakhstan. Bloomberg file
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