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Alaska will continue to be major asset in combined company Alaska’s 40 percent contribution to Phillips’ worldwide production will be diluted to 25 percent when it is combined with Conoco’s production Steve Sutherlin PNA Managing Editor
Alaska’s hefty percentage of Phillips Petroleum Co.’s worldwide production will be diluted when Conoco and Phillips become ConocoPhillips in late 2002 and production totals of the companies are combined. The merger, announced Nov. 18, is subject to regulatory and stockholder approval.
Alaska is — and will continue to be — a major asset, Phillips Alaska spokeswoman Natalie Knox told PNA. Alaska accounts for 40 percent of Phillips' worldwide production (barrels of oil equivalent). "After the merger Alaska's share will be about 25 percent of combined production," she said, "still a major legacy asset."
ConocoPhillips daily production will be 1.7 million BOE, the merging companies said.
The stock prices of both companies closed higher Nov. 19, the first day of trading following the merger announcement.
Based on its balance sheet and its own exploration commitments, Conoco is unlikely to feed major cash into Phillips exploration and production programs until it pays down some of its debt, which ballooned with the Gulf Canada purchase.
Conoco’s debt to equity ratio is 1.21. In contrast, Phillips has recently been praised by analysts for aggressively paring down its debt from the purchase of ARCO Alaska and the Tosco refinery operation. Phillips’ debt to equity ratio is .54, below the industry average.
Other suitors? The merger announcement produced initial speculation that other suitors might appear for Conoco, at $15.2 billion of market capitalization the smaller of the companies, because no premium was placed on its stock in what was billed as a merger of equals.
But as analysts had a chance to review the deal, the outside suitor possibility was discounted because of regulatory difficulties larger firms such as ExxonMobil would face, whereas Phillips and Conoco have little in the way of overlapping interests to raise the hackles of regulators. TotalFinaElf has had a look at Conoco in the past, but European analysts said the company is not predisposed to hostile takeovers and is unlikely to bid unless assured of success.
Both companies have sharply altered the size and geographic positioning of reserves and production with recent acquisitions. Phillips doubled its reserves and increased daily production by 70 percent with the purchase of ARCO Alaska in 2000. Conoco boosted its worldwide reserves by more than 1 billion BOE to 3.7 billion BOE with the acquisition of Gulf Canada Resources in July. The purchase is expected to increase worldwide production by 32 percent in 2001 to 335 million BOE.
Boost of gas as percentage of production The Gulf Canada purchase also moved Conoco closer to its goal of having natural gas comprise 50 percent of its total worldwide production, by increasing North American natural gas production and proved natural gas reserves 50 percent to 1.4 billion cubic feet per day and 4.1 trillion cubic feet net, respectively. Conoco has increased gas production as a percentage of worldwide production from 37 percent in 1996 to 45 percent in 2001, Rob McKee, Conoco vice president of exploration and production told analysts at a Nov. 14 meeting.
The merger with Phillips will bump the gas-oil ratio for the combined company down to 38-62, Archie Dunham, Conoco chairman and chief executive officer said at the Nov. 18 press conference, adding that ConocoPhillips will adopt Conoco’s goal of a 50-50 gas-oil ratio.
A large portion of ConocoPhillips growth in gas production will likely be in North America, due to aggressive Conoco exploration in the Mackenzie Delta and the Gulf of Mexico, coupled with the eventual commercialization of Phillips’ North Slope reserves. (See related story on page 1.)
Conoco is an integrated, international energy company with operations in more than 40 countries. Headquartered in Houston, Texas, the company had 20,000 employees and $27.7 billion in assets at Sept. 30.
Phillips Petroleum is an integrated petroleum company with interests around the world. Headquartered in Bartlesville, Okla., the company had 38,500 employees and $35.4 billion in assets at Sept. 30.
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