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Michael Fitzsimmons is a firm believer in the peak oil theory and that it will be the dominant investment theme until adequately addressed, i.e. the next few decades. He believes the fundamental realities of worldwide oil supply/demand are the biggest threat to the United States economy, its... More
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  • Conoco Philips and Natural Gas Transportation 6 comments
    Oct 29, 2009 10:22 AM | about stocks: COP



    The Conoco Philips (COP) quarterly earnings conference call was noteworthy for a couple of different reasons. First, the company seems to be taking logical steps to address debt issues in light of new realities. Although several oil analysts suggested COP would sell off its LUKOIL stake, company executives took any potential LUKOIL divestitures off the table:
    (Conference call remarks in bold type)
    Paul Sankey
    Great. And then, if I could just clarify an early question. We are saying that you will not be selling out of any of the LUKOIL state? Thanks, I will leave it there. Thank you.
    Jim Mulva (CEO)
    Well, what I said is, we will maintain our strategic relationship with LUKOIL.
    Sig Cornelius (CFO)
    I think we said also that the $10 billion in asset sales don't include any of the LUKOIL share.
    This is good news. The COP/LUKOIL relationship has been very beneficial for both companies and is a future production growth vehicle.
    Secondly, production is growing. Including LUKOIL, total production was 2.2 million BOE/day - up 40,000 BOE per day over last year.
    Next, the company is committed to dividend growth:
    Jim Mulva (CEO)
    We think and believe that annual increases in dividends is a very important discipline for our company and is recognized and our shareholders like to see that.
    The one issue I still don’t understand about the company is Jim Mulva’s refusal to be an outspoken advocate and strongly embrace natural gas transportation. Instead, like other international oil company executives, Mulva continues to site “access” as a big issue:
    Jim Mulva (CEO)
    … And then the other very important point is access continues and will be an issue for companies like ConocoPhillips and international oil companies.
    But what Mulva is talking about here is really access to oil. COP has tremendous access to abundant natural gas reserves in Alaska, the lower-48, and worldwide. The relative underperformance of the company’s stock is a direct result of greater exposure to lower natural gas prices than its peers. Further, under Jim Mulva, COP has invested much of its treasure in Burlington Resources and Origin in order to gain exposure to natural gas! Since the shale plays have been, and will continue to be, a game changer in this space, why doesn’t Mulva join other natural gas advocates like Hefner, Pickens, and McClendon and embrace natural gas transportation in America? Certainly COP will continue to profit from the fundamentals of oil supply/demand and the continuing ramping up of gasoline powered vehicles in China, India, and Asia in general. This is validated by a $75/barrel price during a period of brimming oil inventories coincident with the worst financial downturn since the Great Depression. So, Jim, if you’re worried about natural gas transportation hurting your oil profits – don’t be! You should be a patriotic American and do the best thing to help turn your country and your company around: support natural gas transportation. It is the best way to save your legacy and increase the return on your natural gas investments. Instead of being criticized for over-paying for natural gas assets, you would instead be viewed as an energy and ecological visionary. Otherwise, natural gas demand in the US will continue to stagnant, supply is the turn of a valve away, and natural gas prices will remain pressured for years to come.
              In the final analysis, COP remains an extremely attractive investment at current levels. With a dividend close to 4%, a wealth of oil and natural gas assets, and an extremely bullish outlook for energy in general, Conoco is well positioned for future earnings growth. That said, the company would fire on all cylinders if America got serious about addressing the economic, environmental, and national security issues facing it as a result of its imported oil crisis and adopted natural gas transportation. As a patriotic American and in the best interest of shareholders, Conoco Philips CEO Jim Mulva should embrace that effort.

    Disclosures: Long COP.
    Themes: Energy Oil Natural Gas Stocks: COP
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This post has 6 comments:

  •  
    I think COP looks good, too. I would like to hold it forever. It is the oil sands sale that I find more interesting than the reiteration about Lukoil.
    COP is investing in interesting technologies and positioning themselves well for the future.
    Oct 29 12:44 PM | Link | Reply
  •  
    hey options: yeah, the lukoil coments weren't surprising...it would be a very easy way to pay down debt, but it certainly doesn't make strategic long-term sense. i mentioned it in the article because i recently got in a big debate with someone the other day about the issue - i told him there was no way COP would bail on the lukoil relationship. wrt oil sands, did you read this recent SA post:

    seekingalpha.com/artic...

    i don't know about this analysis...what do you think? i believe they're in the oil sands for the long term. otherwise, why the refinery upgrade to handle its heavy crude? it would only make sense to sell the oil sands stake if the refinery was included in the deal, and perhaps it does make sense to shrink the refinery side of the business, i dunno. certainly COP has suffered from an above average percent in its refining business as compared to peers. that said, i still think COP is a steal at $50/share. i'll just hold mine and collect the dividend. i sure wish XOM would take a fresh look at their paltry dividend!!
    Oct 29 01:29 PM | Link | Reply
  •  
    options: wow! top 10, congradualtions ;)
    Oct 29 01:29 PM | Link | Reply
  •  
    What Mulva actually said regarding "Access":

    " But I think the industry and our company we have noticed that our access is just not what it
    used to be, and there is no indication that access is going to change in terms of the opportunities. They become more challenged."

    He isn't talking about oil or natural gas in particular, he is talking in general terms about the inability to gain access to viable acreage and because of that his company is going to develop the acreage they already have. They are downsizing, selling noncore assets.

    They Have Not invested Billions of dollars on Nat. Gas in Abu Dabi, They Have Not started Building the LNG terminal, Heck, they are still deciding if its a Viable investment, won't know for sure until the 1st or 2nd qrtr. of next year.

    The transcript is available at COP's website, so you do not have to remember what was actually said.

    When you post this as an Article, I'll be sure to include the Section on the LNG terminal, from the Current transcript and the Statement you made in a previous article. about all of the Billions COP has spent on NG.

    Too bad you can't alter an Article or Change a Transcript.
    Oct 29 02:31 PM | Link | Reply
  •  
    You didn't convince me that XOM's dividend is paltry in that article you wrote!


    On Oct 29 01:29 PM Michael Fitzsimmons wrote:

    > hey options: yeah, the lukoil coments weren't surprising...it would
    > be a very easy way to pay down debt, but it certainly doesn't make
    > strategic long-term sense. i mentioned it in the article because
    > i recently got in a big debate with someone the other day about the
    > issue - i told him there was no way COP would bail on the lukoil
    > relationship. wrt oil sands, did you read this recent SA post:<br/>
    >
    > seekingalpha.com/artic...
    >
    >
    > i don't know about this analysis...what do you think? i believe they're
    > in the oil sands for the long term. otherwise, why the refinery upgrade
    > to handle its heavy crude? it would only make sense to sell the oil
    > sands stake if the refinery was included in the deal, and perhaps
    > it does make sense to shrink the refinery side of the business, i
    > dunno. certainly COP has suffered from an above average percent in
    > its refining business as compared to peers. that said, i still think
    > COP is a steal at $50/share. i'll just hold mine and collect the
    > dividend. i sure wish XOM would take a fresh look at their paltry
    > dividend!!
    Oct 30 02:15 PM | Link | Reply
  •  
    Hey, ho, hi diddly, Got COP mixed up with XOM, but whatcha going to do, In one comment you down play COP's nat gas holdings, here you push them.

    Both Articles include: COP, Mulva and Patriotic. I Misread, misinterpreted or was otherwise confused...sound familiar?

    Sorry about that.

    Are you still leaving the Country if 1835 isn't passed?
    Oct 30 02:37 PM | Link | Reply
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