ConocoPhillips looks ahead by cutting back

Q:Can I expect my ConocoPhillips shares to improve their performance? -- C.G., via the Internet

Answer: The third-largest U.S. oil company, an aggressive leader in acquisitions earlier in this decade, had to end its free-spending ways because of weak demand and low prices for oil and natural gas.

It plans to sell $10 billion worth of nonstrategic or mature assets during the next two years and significantly decrease its capital spending. Operating with less than $1 billion in cash and more than $30 billion in debt, ConocoPhillips has laid off thousands of workers and taken large write-downs.

"We will replace reserves and grow production from a reduced, but more strategic, base," said Chairman and CEO James Mulva, who has not indicated whether the company's 20 percent stake in Russia's Lukoil Holdings might be among possibilities for a sale.

Shares of ConocoPhillips (COP) are up 3 percent this year after last year's 39 percent drop. The company raised its quarterly dividend, which surprised some analysts who considered that extravagant in light of its other challenges.

Ranking behind ExxonMobil Corp. and Chevron Corp. in revenue and market capitalization, ConocoPhillips has a much smaller cash reserve than those rivals because of its acquisition spending during the period of high demand and high commodity prices.

It focused on acquiring companies as competitors stressed exploration. Besides its purchase of a Lukoil stake in 2004, it made a $35 billion acquisition of U.S. natural-gas producer Burlington Resources in 2006. And ConocoPhillips entered into an $8 billion joint venture in Australia in September 2008 to export natural gas.

Taking into account the positives of the company's significant holdings and its potential for continued cost-cutting, the consensus analyst opinion on ConocoPhillips stock is "hold," according to Thomson Reuters, consisting of two "strong buys," two "buys," 11 "holds" and one "underperform."

The company recently announced its second major oil discovery in a portion of the deep waters of the Gulf of Mexico, though the extreme depth will present significant technical requirements. In addition, federal officials recently permitted ConocoPhillips and partner Anadarko Petroleum to pull together a number of Alaskan North Slope oil and gas leases into a new oilfield unit.

Earnings are expected to decline 67 percent this year, versus the 61 percent forecast for the major integrated oil and gas industry. Next year's projected 64 percent rise compares with the forecast of a 59 percent gain industrywide. The expected five-year annualized decline of 1 percent compares with a 6 percent increase for its peers.

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