Summary

CcnocoPhillips ("Conoco") is down to less than $1 billion in cash and $30 billions in debt. Something has to give.  Sale of assets in the order of $10 billions is considered by CEO James Mulva. 

Analysis

CEO James Mulva built a house of cards during the period of high oil prices and neglected upstream E&P (Exploration and Production / Reserves).  In contrast ExxonMobil, Chevron and Shell (to some degree) preserved their $30 Billion + cash reserves for investment in E&P. Now Conoco has to reverse course and find the best global partner to combine their mutual prime assets and technologies to stay competitive as major IOC.
With our long term insight to the global oil & gas business we recommend for Conoco to form a alliance and/or merger with Statoil.  The combined assets and technologies would lead in:
  • The Arctic 
  • LNG
  • Russia
  • US NG / LNG 
  • CTL 
  • Coke to LIquids
  • Gasification together with Sasol
In order to have this scenario to happen, the Conoco board has to step in an give James Mulva new marching orders:
  • Divest as many unprofitable US refineries as possible
  • Divest and/or get partners for Burlington Resources
  • Leverage the 20% stake in Lukoil Holdings for first class contract and investment opportunities in the Russian Arctic together with Statoil
The John D. strategy is winning all the time and Conoco has to fall into step to remain a major IOC.  We hope the Conoco board will timely consider our recommendations.

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.