Conoco to sell stake in Russia’s Lukoil

ConocoPhillips on Wednesday said it would sell its entire stake in Lukoil, bringing to a close its attempt to use the partnership with Russia’s second-biggest oil producer to develop business in the country.

Jim Mulva, Conoco chief executive, said the Lukoil investment had been aimed at doing joint deals and these had not happened.

Merger and acquisition opportunities had become few and far between, were very expensive, and raised questions about whether they created shareholder value, Mr Mulva said.

“The world really has changed.’’

The US group has invested about $7.5bn in Lukoil since 2004 and Mr Mulva said it was expecting to sell its entire 20 per cent stake for about $10bn.

Conoco, which had said it would sell half of its stake, said the decision to dispose of its entire holding in Lukoil was part of efforts to raise funds to repurchase shares and cut debt.

The US group is trying to refocus its business to improve returns to shareholders.

Conoco, the third-biggest oil company in the US, recorded a loss of $17bn for 2008, when the recession exposed weaknesses in its portfolio.

It is selling $10bn in assets on top of the Lukoil stake.

Conoco will sell two-fifths of its holding of Lukoil shares back to the company for $3.4bn in the third quarter. The remaining three-fifths of Conoco’s shares will be sold in the open market or to Lukoil by the end of 2011.

Conoco’s second-quarter adjusted earnings were $2.5bn, or $1.67 per share, excluding a net benefit of $1.7bn, mostly from “dispositions” and an impairment.

In the year-earlier quarter, adjusted earnings were $982m, or 66 cents a share.

In addition to asset sales, the improvement was a result of higher commodity prices and the better climate for refining and marketing.

During the quarter, Conoco generated $3.5bn in cash from operations and $5.8bn in cash proceeds from asset sales.

The cash was used to pay down $2.7bn in debt, fund a $2.2bn capital programme, repurchase $400m of Conoco stock and pay $800m in dividends.

The group had a cash balance of $4.1bn at the end of the quarter, most of which will be used to pay debt.

As of June 30, debt was $26.3bn.

Conoco said it would be comfortable with debt of $22bn-$23bn, down from its high of $30.5bn in 2009.

Additional reporting by Catherine Belton in Moscow