ConocoPhillips (COP) yesterday announced plans to increase shareholder value at its annual analyst meeting in New York. These plans include debt reduction by using proceeds from assets divestiture, increase in dividend and resumption of share repurchases.
 
In 2010 and 2011, Conoco will sell approximately $10 billion of assets, including its interest in Syncrude and the Rex Pipeline, 10% of its Lower 48 and Western Canada portfolio and its remaining U.S. marketing assets. The company is also planning to reduce its equity ownership in LUKOIL (a major Russian integrated oil and gas company) to 10% from the existing 20%.
 
Conoco anticipates significant cash flows from operating activities. Apart from the debt reduction, the company intends to increase its dividend by 10%. In addition, the company has also announced a $5 billion share repurchase program during this meeting.
 
The company said that the sale of its exploration and production (E&P) assets will have a negative impact on its overall production over the next few years. Despite this, it anticipates per share production growth of 3% in 2010 and 2011 and 3−5% in the following years.
 
While Conoco is planning to go all out for boosting its return on capital employed (ROCE) and increasing shareholder value, its impact on the company’s fundamental valuation will be minimal, in our view.
 
Though the share buyback process with the aid of assets disposal proceeds may support the stock in the near term, we are concerned about the company’s free cash flow generating capacity after funding its capital program and dividends. Our Neutral recommendation for the stock remains unchanged.
Read the full analyst report on “COP”
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