ConocoPhillips may sell more non-core assets

OREANDA-NEWS. July 31, 2015. ConocoPhillips may sell more assets that are not core to its operations as persistently low crude prices squeeze cash flow.

ConocoPhillips has already said it will sell its aging North Cook Inlet and Beluga River assets in Alaska to focus on its North Slope operations, including the massive Alaska LNG project. Those are in addition to assets offered in Canada in March.

The company said in its second quarter earnings call today it is also cutting its 2015 spending guidance by another \\$500mn, to \\$11bn, after cutting it from \\$16bn earlier. It also lowered its operating cost guidance to \\$8.9bn from \\$9.2bn for the year and cut corporate expenses by \\$100mn. These measures are expected to improve net cash flow by \\$900mn, versus \\$700mn estimated earlier.

"Rest assured ConocoPhillips is laser-focused on the things we can control," chief executive Ryan Lance said in the earnings call. "We believe we can achieve cash flow neutrality in 2017 and beyond through exercising capital flexibility even at \\$60/bl Brent."

The world's biggest independent oil and gas producer is facing the first major test of its 2012 move to spin off the refining business and focus purely on oil exploration and production. A fall in crude prices since 2014 is forcing most independent producers to report losses while refiners post robust income as their main feedstock costs fall. Majors like ExxonMobil who have presence in both segments are able to offset low upstream income with high refining profits.

Most independent producers that have reported their second-quarter earnings so far have announced further belt-tightening measures to ensure they are able to generate enough cash to fund operations and pay dividends. With large debt taken on the back of \\$100/bl oil, the US shale oil industry is struggling to tap newer sources of funding to service those borrowings and pay for future drilling.

Apart from asset sales, the way forward for Conoco Phillips will be to shift toward short-cycle developments, hold back on uncommitted major projects and scale back the more expensive deepwater activities, particularly in the US Gulf of Mexico (GoM).

It also said that it had the financial flexibility to cut capex down to \\$8bn, and go into a maintaining-output mode, to make sure it meets its goal to become cash flow neutral by 2017.

ConocoPhillips terminated an agreement for a drill ship, taking a one-time charge of up to \\$400mn as a special item in the third quarter, executive vice president for exploration and production Matt Fox said. "The drill ship wasn't scheduled for delivery to the Gulf until later this year, so not a lot has changed for our 2015 drilling program," Fox said.

ConocoPhillips posted a net loss of \\$179mn in the second quarter versus a net income of \\$2.08bn a year earlier.