ConocoPhillips (COP) may reduce its Lukoil stake by 50% within three years. Conoco has a 20% interest in Lukoil, a privately owned Russian oil and gas company, and intends to sell 10% of it, according to a report. 

The report also said that Conoco may announce this plan in its annual analyst meeting, which is scheduled to be held on March 24. Following 2004, the first time when Conoco bought into Lukoil, the stake percentage has been gradually increased to 20%. 

During this period, Conoco had invested a significant amount of money into a joint production unit with Lukoil in Russia’s Arctic, Naryanmarneftegaz. The source also said Conoco and Lukoil will likely continue to co-own their Arctic joint venture, which produces around 150,000 barrels per day.
Lukoil Investment is an important operating segment of Conoco. In the last year, this segment generated about 28% of the company’s total adjusted earnings.
Conoco has decided to sell $10 billion of assets over the next two years and can raise $4.6 billion at current prices from this transaction alone. Depending on how the sale progresses, the company may see a downtrend in its reserves at the end of 2010 or in 2011. 

Despite being the third largest US oil integrated, Conoco is the most leveraged among its peers and has almost no exposure to the prolific non-conventional plays. All these concerns are reflected in our Neutral recommendation for the stock.
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