ConocoPhillips to Shed Nigerian Unit - Analyst Blog

ConocoPhillips COP has received the consent of the Minister of Petroleum Resources of Nigeria for the divestiture of the country's Upstream Oil and Gas Business. The assets would be acquired by the leading Canadian exploration and production company, Oando Energy Resources. The purchase consideration would total $1.65 billion in cash. The transaction is expected to be completed by Jun 30, 2014 or shortly thereafter.

ConocoPhillips' recent performance was backed by a continued portfolio shift to liquids and higher production from new development programs, as well as upstream ventures in key projects. However, this was partially offset by lower oil realizations. ConocoPhillips is progressing on other North American shale plays, including several emerging areas.

With leading positions in both natural gas and heavy crude oil in North America, as well as a legacy position in the North Sea and growing exposure to lucrative international regions, ConocoPhillips expects to replace reserves and sustain production growth over the long term.

ConocoPhillips' initiatives toward liquids-rich plays are gaining momentum through the Eagle Ford, Bakken and Permian plays. The company is also poised to benefit from a pipeline of projects in the Gulf of Mexico (GoM), Malaysia, the liquefied natural gas LNG project in Australia, the U.K., Norway, and the Canadian oil sands, apart from the US Lower 48 liquids-rich plays. Oil sands expansion projects are also on track.

Since Apr 2012, when the company spun off its refining operations to Phillips 66 PSX, it has delivered total shareholder returns of 22%. With this, ConocoPhillips has shifted its total focus to upstream operations and thus oil and gas prices play a major role in determining its performance. The company plans to expand production by maintaining its growth focus on reserves, through global drilling programs in legacy assets, unconventional assets and major projects.

ConocoPhillips' margin growth would also be aided by the addition of higher-value products in its production mix. The company expects to spend $16 billion on average annually and will allocate 95% of its capital to investments that deliver above-average margins. The recent activity targets offshore prospects in Australia Angola and Senegal, conventional exploration in Norway and Indonesia, and unconventional exploration in North America, Poland and Colombia.

ConocoPhillips currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include Encana Corp ECA and Matrix Service Company MTRX. Both sport a Zacks Rank #1 (Strong Buy).