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ConocoPhillips May Announce Decision on Shah Project This Week

April 27 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil company, may announce its decision this week on whether to remain a partner in the Shah sour-gas project with Abu Dhabi, according to people familiar with the matter.

The disclosure of ConocoPhillips’s plan may come as soon as tomorrow, said the people, who asked not to be identified because they aren’t authorized to speak on the subject. John McLemore, a ConocoPhillips spokesman, declined today to comment on the Shah project. The project’s cost has been estimated at $10 billion.

Abu Dhabi National Oil Co., the state-owned oil producer, and ConocoPhillips agreed in 2008 to jointly work on the Shah gas project. ConocoPhillips, based in Houston, said Shah fit with its global strategy, in part because of its experience in developing high-sulfur gas fields. The U.S. company said in October that it will sell $10 billion of assets over two years to help reduce debt.

“The overall goal of the restructuring I guess we could say is to improve their returns,” said Philip Weiss, an analyst at Argus Research in New York who has a “hold” rating on ConocoPhillips shares and owns none. “Within that concept or idea, now they have to look at, ‘All right, which of our projects generate adequate returns?’”

ConocoPhillips this month pulled out of the proposed Yanbu refinery venture with Saudi Aramco, citing a plan to tighten the company’s focus on exploring for petroleum. The company said in December it planned to make investment decisions on the Yanbu and Shah projects in the first half of 2010.

Gas Push

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 head of communications at the joint venture with ConocoPhillips, Abu Dhabi Gas Development Co., didn’t answer telephone calls seeking comment. Abu Dhabi, an oil-rich U.A.E. sheikdom, chose ConocoPhillips for the Shah project after considering bids from such companies as Exxon Mobil Corp., Royal Dutch Shell Plc and Occidental Petroleum Corp.

The development is scheduled to start production in the second or third quarter of 2014, Saif Ahmed Al-Ghafli, chief executive officer of the joint venture, told reporters last month.

The Shah project will process 1 billion cubic feet of sour gas a day and turn that into more than 500 million cubic feet of fuel for sale 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 needs to know what the project will cost. He said ConocoPhillips will make a value-based decision.

Exxon Mobil and Chevron Corp. are the largest U.S. oil companies.

To contact the reporters on this story: Edward Klump in Houston at eklump@bloomberg.net; Ayesha Daya in Dubai at adaya1@bloomberg.net.

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Steve Voss at sev@bloomberg.net.

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