ConocoPhillips (COP) intends to divest its $1.5 billion worth of Vietnam assets in the contentious South China Sea to Petrovietnam and partners.
This is reflective of the U.S. oil company’s effort to categorize its asset base and sustain its growth trajectory.
In a complex of five oilfields in Block 15-1, ConocoPhillips holds a 23.3% interest. Its partners, the state-run Vietnam oil and gas group Petrovietnam, Korea National Oil Corp stake, Korea’s SK Corp and Monaco’s Geopetrol hold a 50%, 14.2%, 9% and 3.5% interest, respectively.
In Block 15-2, ConocoPhillips enjoys a 36% stake of the Rang Dong oilfield in the Cuu Long basin with the other partners being Japan Vietnam Petroleum Co with a 46.5% stake and Petrovietnam with 17.5%.
In the Nam Con Son gas pipeline project, the U.S. integrate owns a 16.3% share along with its co-partners BP Plc (BP) with 32.7% and Petrovietnam with 17.5% interests.
The expected divestiture plan is a part of the company’s restructuring program, under which it aims to exit countries in which it has a small presence. The area in the South China Sea remains loaded with hydrocarbon deposits and is under dispute involving China, the Philippines and Vietnam over proprietary rights. Vietnam and the Philippines have charged China with increasing conflict in the area by disturbing seismic cables on oil and gas exploration ships, threatening to damage vessels and injuring fishermen.
As the third-largest U.S. oil company by market value after ExxonMobil Corp. (XOM) and Chevron Corp. (CVX), ConocoPhillips’ latest asset sale decision might reflect the technical or political complexities over the oil fields, which are located 180 kilometers southeast of Ho Chi Minh City.
However, on Petrovietnam’s part, this acquisition plan demonstrates a commitment to help protect Vietnam’s sovereignty in the East Sea, as it calls the disputed area. PetroVietnam stated that it will not change its exploration and production plan in the East Sea.
We appreciate ConocoPhillips’ emphasis on creating shareholder value through operational excellence, strong project execution, dividend payout and utilization of its excess cash flow to repurchase shares. Further, strong proceeds from asset sales, disposal of low-profit generating properties and cancelation of potentially less profitable projects adds to the company’s attempt to sustain its growth trajectory.
We maintain our long-term Neutral recommendation for the company, which retains a Zacks #3 Rank (short-term Hold rating).
