ConocoPhillips Tables Asset Sales as Rout Worsens Buyer's Market

Oil Producer Earnings Shake Off Low Price Pressure
  • Company to reduce its deep-water exploration activity
  • Keeps full-year production estimate, operating costs unchanged

ConocoPhillips is pulling some of its assets off the market as a prolonged industry downturn makes it harder to get the desired prices.

"We pulled some assets off the market where we’re not getting what we think is fair value for it, but there are a few more assets that we still have on the market that we’re hopeful around," Chief Executive Officer Ryan Lance said on an earnings call on Thursday. "The market has softened quite a lot."

The third-largest U.S. oil producer is among a slew of drillers that have turned to asset sales and cost cuts to cope with crude prices 60 percent below their 2014 peak. The company was considering the sale of Western Canadian assets estimated to be worth as much as C$1 billion ($792 million), people familiar with the matter said in February.

ConocoPhillips has some assets on the market in Indonesia as well as portions of its deep-water portfolio, Lance said, noting the company is "not going to fire sale anything." The gap between what sellers and buyers think assets are worth will narrow once there’s "increasing consensus of lower for longer," according to Ernest & Young’s global oil and gas transactions review 2015.

As raising cash through sales proves difficult and the company had a net loss for the fourth straight quarter in the first three months of the year, ConocoPhillips is reducing spending further.

The 2016 capital budget was lowered 11 percent to $5.7 billion, primarily driven by cuts to deep-water exploration, deferrals and lower costs across the portfolio, the Houston-based company said in an earnings statement Thursday. The producer maintained its full-year guidance for production and operating costs, and its earnings per share beat analysts’ estimates by 10 cents.

"During the quarter, we took actions to conserve cash, improve liquidity and position the company for strong performance as prices improve," Lance said in the statement. "We reduced our dividend, further reduced our 2016 capital expenditures guidance, raised low-cost debt and continued to improve our cost structure."

The cost cuts, while consistent with plans to reduce deep-water activity, raise the question of how ConocoPhillips will maintain its production guidance, said Luana Siegfried, an analyst at Raymond James.

"If the company can keep lower costs across the portfolio, something stable, the capex spending could be good for the company," Siegfried said.

The first-quarter net loss was $1.5 billion, or $1.18 a share. That compares with a profit of $272 million, or 22 cents, a year earlier. Excluding one-time items, the per-share loss was 95 cents, better than the $1.05 average of 22 estimates compiled by Bloomberg.

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