The largest U.S. independent oil producer, ConocoPhillips (COP.N), will sell up to $8 billion in natural gas assets and trim its capital budget by 4 percent next year to provide funds to bolster operations, executives said on Thursday, November 10.
The moves highlighted not only the energy industry’s increasing push for efficiency gains that reduce the cost of drawing oil and natural gas from the earth but also low commodity prices, which have hampered Conoco and peers the past two years, Reuters reports.
Shares of the Houston-based company slumped about 1 percent to $45.21 in afternoon trading as U.S. oil prices CLc1 fell about 1 percent.
The asset sale alone reflects a bold move by Chief Executive Officer Ryan Lance to reduce the company’s $28.7 billion debt load.
“We’re a very large company and those assets aren’t big for us,” Lance said in an interview. “We recognize that we need to accelerate the value proposition for some investors and accelerate the removal of debt from the balance sheet.”
Conoco plans to sell $5 billion to $8 billion in North American natural gas assets, a divestiture that is massive in its size and scope. For example, Chesapeake Energy Corp (CHK.N), the second-largest U.S. natural gas producer, has a $5 billion market valuation.
The spending reduction comes after Conoco more than halved its budget last year. Indeed, its 2015 capex had eclipsed $10 billion.
“You can’t count on rising commodity prices to bail out your business model,” Lance said. “You have to position your business for the commodity price cycles.”
Lance, CEO since 2012, said the spending cuts, asset sales and other steps should help the company be profitable with Brent oil prices LCOc1 of $50 per barrel. Brent traded at $45.96 on Thursday.
Most of the budget next year will be spent on shale projects in the contiguous United States, with some focus on Alaska and Europe, as well as maintenance of existing operations.
