Tuesday, April 8, 2008

Conoco Phillips (COP) at Howard Weil


COP discussed business environment that they are operating in. OECD demand is flat – growth from Middle East, China and India. Resource nationalization and heightened competition to continue. They are still bullish on oil prices.

Demand to grow to 120 million barrels a day by 2030 – COP can’t see industry meeting that demand.

Cost of new supply is driving prices higher in oil markets.

Natural gas – COP has always contested the estimate of the amount of LNG that will be imported to U.S. – see Europe getting a lot of it - thus the see a robust market for Natural Gas in the U.S.

Strategic Objectives

To be competitive with peers on Cash and income per BOE.

Debt rate 20-25%

65-70% - E and P
20-25% - R and M
5% - everything else.

Production – 2% long term growth rate.
5 year reserve replacement - 100%

Downstream investments being made are not to add capacity but to improve ability to refine heavier crude.

Encana venture – they have no refineries so traded an interest in a refinery for some of their properties.

Lukoil – COP owns 20% of Lukoil – value is double what COP paid for them.

Financial Strategy – aggressive share repurchase, competitive distributions, enhanced per share metrics.

Return on Capital Employed – used purchase accounting to buy Burlington and since Natural gas prices were low after purchase, this affected ROCE. If you use cash based metrics, then they are better.

Bought $ 5 billion in shares in last two quarters of 2007 – this leaves $10 billion left in authorization – this strategy boosts per share metrics.

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