(COP) has exercised an option to buy out a 50% stake in its coking unit at the Sweeny refinery in Texas from Petróleos de Venezuela S.A. (PDVSA). PDVSA is Venezuela’s state-run oil company.

ConocoPhillips has an equal interest in Merey Sweeny L.P., a limited partnership that owns a 65-million-barrels-per-day delayed coker unit and related facilities at the Sweeny refinery. Used in refineries, a delayed coker unit is a plant that cracks heavy, long-chain hydrocarbon molecules of the residual oil into gas, oil and petroleum coke. PDVSA supplies the refinery with Venezuelan crude oil.

Since the beginning of this year, PDVSA has not supplied enough crude oil to meet contractual specifications. Thus, ConocoPhillips’ deliveries from Venezuela fell to 146,000 barrels a day in the first half of 2009 from 210,000 barrels a year earlier. Following this, ConocoPhillips plans to take full control of the unit.

The takeover follows a year-long battle between the two companies. PDVSA had seized operating control of a joint venture in Venezuela’s Orinoco Belt from ConocoPhillips in May 2007. ConocoPhillips left the country, filed for arbitration and wrote off $4.5 billion rather than accepting a non-operating stake.

Although the expropriation of projects in Venezuela has been temporarily hindering ConocoPhillips’ growth objectives, we believe this shortfall will be made up in the medium-to- long-term with this takeover and through production ramp-up in other areas.

ConocoPhillips also anticipates strong growth in the Asia-Pacific, Russia and Caspian, and the Middle East regions to offset natural declines in its North American and North Sea assets. We currently rate the company as a Neutral.

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