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ConocoPhillips to lay low in acquisition market, focus on organic growth

BY ALISON SIDER
 
HOUSTON -- ConocoPhillips is focusing on North America, but plans to go about its transformation differently than it has in the past, focusing more on organic growth than on its old practice of snapping up smaller companies, CEO Ryan Lance said.

"The change that' s happened since becoming an independent company is a swing of the ship, a pivoting toward organic growth," Lance told the World Affairs Council of Houston.

That' s a shift from the old way of doing things, Mr. Lance said, noting that Conoco and Phillips Petroleum Co were both active buyers before their merger in 2002. The combined company then bought Burlington Resources in 2006. But last year the company started to unwind that process, separating from Phillips 66, its refining arm, and shedding billions of dollars worth of oil and gas assets around the world in order to focus on core areas of its portfolio in North America. That' s where the widespread adoption of hydraulic fracturing technology has unleashed unprecedented amounts of oil and gas.

"The merger and acquisition side of that is taking a back seat," Lance said.

Oil and gas prices are likely to remain at relatively high but stable levels barring extremely restrictive new regulations, a geopolitical shake-up or a surprise in the development of global unconventional resources, Lance said.

"A growing economy, the middle class growing in China and in India, continued growth coming out of our economic slump supports prices in the range we see today" he said.

In the last year, ConocoPhillips has announced plans to shed nearly $12 bn in assets, including some in Nigeria, Algeria and Kazakhstan. It plans to redeploy much of that cash into its North American assets. Though Mr. Lance said North America isn' t the only region where shale formations contain previously untapped reservoirs of oil and gas that can now be developed, regulatory systems and public ownership of mineral rights might slow that process in other countries.

"It' s going to take a lot more time," he said of international shale development.

Mr. Lance said he believes Venezuela' s influence in South America is waning and with countries such as Colombia and Brazil opening their borders, the continent is becoming an easier place for foreign oil companies to work. ConocoPhillips and Exxon Mobil have pending disputes with Venezuela relating to the country' s nationalization of oil assets in 2007. ConocoPhillips no longer works in Venezuela, and its only operations in South America are in Peru.

Mr. Lance said, "The company still has work to do" on its portfolio. "We want to get down to a lower cost of supply, we want to be resilient to the downturns in the market" he said.

He said deepwater discoveries in regions such as the United States Gulf of Mexico and Africa' s east and west coasts can also be developed in a cost effective way. The same is true for some Arctic regions, such as the Chuckchi and Beaufort Seas off the coast of Alaska, but Lance said he is less convinced that more ice prone regions in Arctic seas will pay off, at least at current prices and with the technology available today.

Mr. Lance said the United States will likely be "energy secure" by 2020 or 2030 though he noted that the country should stay active in international markets.

"This is a globally interconnected world. You don' t want to eliminate yourself from that activity" he said.

In 2011, 45% of the crude oil used in the United States was imported, but several refiners, especially along the Gulf Coast, have said their need for imported crude has dropped off drastically.

Dow Jones Newswires

02/19/2013

 

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