Conoco to halve its 20 percent stake in LUKOIL

ConocoPhillips said it plans to halve its 20 percent equity stake in Russian oil major LUKOIL as part of a program to boost returns and reduce debt.

Conoco, which has big exposure to a weak refining market and is challenged by exploration and production assets in North America that are tilted toward less-profitable natural gas, lags its oil major peers in returns.

ConocoPhillips released a bare-bones plan to revive its finances five months ago, which included the sale of $10 billion in assets.

At the time, investors and analysts speculated that Conoco might sell part of its stake in the Russian oil major and last week Reuters reported that Conoco had decided to do so.

It is "more appropriate" for the company to use proceeds from part of its LUKOIL interest to increase shareholder value, Jim Mulva, Conoco chief executive, told the company's annual meeting with analysts. But he also said it was important for the company to remain in Russia.

LUKOIL was the most likely buyer of the 10 percent stake, which is worth $4.9 billion, analysts at Raymond James said in a research note.

LUKOIL Vice President Leonid Fedun told analysts in London that his company would not rule out buying the shares being sold by Conoco, but added that the Kremlin could oppose such a move.

Conoco said potential dispositions in 2010 include its interests in the Syncrude oil sands project and the Rex pipeline, 10 percent of its Lower 48 and Western Canada portfolio, and its remaining gasoline retail operations.

About half of the assets will be sold in 2010, and the remainder in 2011, the company said.

The company also said it plans a $5 billion share repurchase program and will raise its dividend 10 percent.

The third-largest U.S. oil company said it expects per share production growth of 3 percent in 2010 and 2011 and 3 percent to 5 percent in subsequent years.

At 1600 GMT, the company's shares were up 7 cents, or 0.1 percent, at $52.58 on the New York Stock Exchange.

LUKOIL's Fedun said planned tax breaks in Russia meant its cash flows could rise and that the Kremlin could object if this money was spent buying back the shares.

"The political leadership of the country may see it negatively," he said.

He added that any purchase would depend on LUKOIL's other financial obligations and said he himself would not buy the shares. Fedun already owns 9 percent of LUKOIL.

LUKOIL, Russia's No. 2 oil producer missed forecasts when posting a 23 percent drop in 2009 profit on Wednesday.

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