ConocoPhillips (COP) completed a deal worth $4.65 billion with Sinopec International Petroleum and Production Co., a Beijing-backed producer. This deal is a part of ConocoPhillips’ $10 billion divestiture program focused on reducing debt and improving return on capital employed (ROCE).
 
Under the divestiture program, Conoco intends to sell $10 billion of assets by 2010 and 2011 in order to strengthen its financial position and improve its balance sheet. As part of the same effort, the company entered into an agreement with Sinopec to sell 9.03% interest in a Canadian oil sands project (Syncrude) for $4.65 billion in April. Canadian ownership of Syncrude remains at nearly 56%.
 
With an intention to expand its already flourishing market, China seeks to reserve energy and invested heavily in northern Alberta oil sands, the largest oil reserve outside the Middle East, last year.
 
The Syncrude deal illustrates the company’s endeavor to create value for shareholders through constant focus on disciplined capital investment, strengthening financial position and higher return on capital.
 
We believe Conoco will be able to generate free cash flow by unlocking its capital that is tied up in non-core assets. However, with this divestiture and keeping an eye on how the rest of the program continues, we opt to remain on the sidelines as the company may see a downtrend in its reserves at the end of 2010 or 2011. Consequently, our Neutral recommendation remains unchanged at this stage.
Read the full analyst report on “COP”
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