Houston-based ConocoPhillips on Wednesday said it remains on track to have around $5 billion worth of assets sold by the end of this year and another $5 billion in 2011 as part of a plan to not only reduce debt but to enhance shareholder returns.

At the company’s annual analyst meeting in New York City, CEO Jim Mulva and his management team filled out some of the details of the company’s long-term global plans. Several months ago ConocoPhillips announced that it would sell about $10 billion worth of noncore assets through 2011 (see Daily GPI, Oct. 29, 2009). Mulva reiterated which projects are on the block: stakes in Rockies Express Pipeline LLC, the Syncrude oilsands project in Canada, and 10% of its Lower 48 and Western Canada portfolio, which includes gasoline retail operations.

Sixty to 80% of the proceeds is to come from the Exploration and Production (E&P) segment, with an expected impact by the end of 2011 of around 80,000-120,000 boe/d on production and 400-600 million boe/d on reserves. “In aggregate, these sales are expected to create financial gains,” said the CEO.

“We are focused on creating and delivering value to our shareholders,” Mulva said. “We are taking decisive action to sell assets, reduce debt, build on our record of shareholder distributions, and improve returns while growing production and reserves per share.”

The decision to sell a 10% equity interest in Russia’s Lukoil operations has been rumored for months, but the announcement Wednesday was the first confirmation of the sale.

“We just felt it was [better] for us to take half of our ownership and invest in our own shares, rather than Lukoil’s,” Mulva said. However, the company plans to maintain a foothold in Lukoil because “it’s important for us to be in Russia.”

ConocoPhillips paid around $2 billion in 2004 to buy a 7.6% stake in Lukoil, and it increased its equity to 20% two years later. The net cash investment in Lukoil equals around $6.4 billion.

In the next several years, ConocoPhillips wants to significantly increase its return on capital employed (ROCE), Mulva explained.

“This ROCE improvement will be assisted by a recovery in natural gas prices and refining margins in North America and driven by continuous improvement in operating efficiencies, constrained capital expenditures, reduced operating costs and a shift in the company’s portfolio to 85% E&P over time.”

The sale of E&P producing assets and the reduction in capital spending will produce higher ROCE, but “it will also have a negative impact on boe production growth over the next few years,” said Mulva. Per-share production growth is forecast to be 3% this year and 5% thereafter. Longer term, “underlying production is expected to grow 2% to 3%, as the company converts 10 billion boe of resources to reserves at competitive finding and development costs.”

In the near term, E&P activity will focus on the Gulf of Mexico, resource plans in North America, Poland and China, and in the Caspian Sea and Browse Basin. Among other things ConocoPhillips has been ramping up exploration in the Eagle Ford Shale in South Texas.

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