ConocoPhillips (COP), the sixth placed super major of oil and gas stocks behind Royal Dutch Shell (RDS.A), Exxon Mobil (XOM), Chevron (CVX), BP (BP), and Total (TOT) is revitalizing itself. The company is expanding its exploration capabilities in areas where known reserves are held, while at the same time, raising capital through the selling of assets in order to invest in future gains.
With a huge portion of assets in the U.S. and operations in 40 other countries, ConocoPhillips is raising the bar on how it conducts business. Observing the company's management strategies is one reason why I firmly believe this company to be one to buy and keep buying as much as possible.
ConocoPhillips is beginning to show a livelier side. The company is shedding excess where needed and beefing up new and current projects, generating more revenue for future exploration. Delta Air Lines recently spent $150 million to purchase ConocoPhillips' Trainer refinery near Philadelphia. The company's plant had struggled in recent years because it was originally set up to support the gasoline market in the Northeast, but consumption declined and light crude oil costs rose faster than other types of crude oil.
Processing mainly light, low-sulfur crude oil, the Trainer facility has a crude oil capacity of 185,000 barrels a day. Delta is going to dump another $100 million into the refinery to get it up to speed and by then the airline estimates that it would reduce its annual fuel expense by $300 million. Delta plans on exchanging gasoline, diesel and other petroleum products produced at the refinery for jet fuel from other oil and gas stars like BP and Phillips 66.
Currently, ConocoPhillips is trying to sell off some Nigerian assets, opening up the possibility of the company raising $2.5 billion. These assets include on-shore and off-shore oil, gas fields, and a stake in its LNG Brass facility. The company is hoping to sell each asset separately in order to reach the full value it hopes to raise. Africa's largest oil producer, Nigeria is pumping more than two million barrels per day and holds the world's seventh largest gas reserves. Royal Dutch Shell recently disposed of on-shore oil fields in the region and attracted interest from local firm's partnerships, so hopes are high for ConocoPhillips.
In June 2011, ConocoPhillips dealt with seepage of oil and other fluids into the water at offshore platforms in the Peng Lai field. The Chinese government suspended production because of what appeared to be a slow response by the company. That field, in which ConocoPhillips holds a 49% stake with Chinese state-owned CNOOC (CEO), is beginning to show signs of life again, getting back to full-throttle production. With a total production capacity of 122,000 Boe/d, the field was producing 40,000 Boe/d in the first quarter.
Additionally, ConocoPhillips has holdings in Libya. In the Libyan plays, the company saw the resumption of oil and gas production during the first quarter of 2012, reporting production of 36,000 BOE per day. Production in this region was suspended during the Libya's civil war in 2011, but resumed in 2012. The company is able to produce more in this area in the future because of its membership in the Waha Group, in which ConocoPhillips and Marathon Oil (MRO) each own a 16.3% working interest along with Hess (HES), which holds a 8.2% working interest. The Waha Group holds a concession area comprising 13 million acres in Libya. Also, the company has exercised the co-option for its 70% operating interest on a 5,000-acre position in Poland, and the company has been eyeing a possible 400 trillion cubic feet of recoverable shale-gas in Australia.
The company's success has been phenomenal, but the ConocoPhillips of old is changing. As of this month, the new ConocoPhillips will become solely an exploration and production operation, while Phillips 66 will become its refining, midstream, and chemicals units. This is a good thing. The spinoff is expected to make ConocoPhillips a more lean, mean, money-making machine.
As of May 1, the newly-formed downstream spinoff, Phillips 66 began trading on the New York Stock Exchange. Phillips 66 Chairman and CEO said that the company will execute a number of strategies to revitalize the refining business. He stated that, "The spin enables the new downstream to focus on different value-creation opportunities. You'll see us invest aggressively in those opportunities."
Ryan Lance, Chairman and CEO of ConocoPhillips said after the spinoff, "ConocoPhillips will truly be unique as an independent E&P company. Our unmatched size, scope and capability position us to compete successfully in this business. With an exclusive focus on exploration and production, we will pursue opportunities and take actions to create value for all our stakeholders. We will emphasize execution and operations excellence, the principles that made us what we are today and that will shape the ConocoPhillips of tomorrow." In the spinoff, the Phillips 66 absorbed ConocoPhillips' downstream units, including its refineries, gas stations and joint venture-businesses in pipelines and chemicals.
For the first quarter 2012, net income is at $2.9 billion, a little lower than the $3.0 billion in the year-ago quarter. Earnings per share were $2.27, 9% higher than $2.09 a year ago.
The company reported oil and gas production of 1.64 million barrels of oil equivalent (BOE) per day in the first quarter of 2012, down from 1.7 million BOE in the same quarter of 2011. The daily production of oil increased by 9,000 barrels from a year ago with a 5,000 barrel increase in daily production over last year from the Canadian oil sands. The company reported that it produced around 110,000 barrels per day of NGLs in North America in the first quarter, and that margins on this production were impacted by the fact that NGL prices did not move up as crude prices moved up.
ConocoPhillips reported first quarter 2012 revenues of $56.13 billion and year-on-year grew revenues 26.46% from $198.66 billion to $251.23 billion, while net income improved 9.49% from $11.36 billion to $12.44 billion. The company has a Debt to Total Capital ratio of 29.73%, lower than the previous year's 32.30%.
With the aggressive and ambitious strategy of the company's management team, ConocoPhillips is a winning pick for the long haul. The recent purchases, asset selling, spinoff, and joint ventures are only positioning the company for greater future success.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.