ConocoPhillips Selling Assets, Announces Buyback

Shareholders don't appear to be too enthusiastic with ConocoPhillips (COP) plans to sell assets and trim its capital budget for 2017. COP shares dropped 2% during the trading session Thursday.

At its Analyst and Investor Meeting Thursday, the independent oil and gas company announced a $3 billion share repurchase program as well as a $5 billion to $8 billion asset divestiture program.

"While these are high-quality assets, they are not attracting development capital in our current plans, and therefore, we think they are going to likely be more valuable to other operators," said Al Hirshberg, ConocoPhillips Executive Vice President for Production, Drilling and Projects.

The divestiture program will be focused primarily on North American natural gas, targeting areas with active acquisition and divestiture (A&D) markets. With a targeted $8 billion asset sale, ConocoPhillips plans to use the funds for debt reduction and buybacks, while also improving underlying margins.

As of the company's third quarter results, which were announced on Oct. 27, ConocoPhillips had $28.69 billion in debt. But during the presentation today, CFO Don Wallette said $20 billion is an "appropriate debt level" and "is achievable within a few years with the planned asset sales."

ConocoPhillips' is also trying to differentiate itself as an exploration and production (E&P) company. "We are charging our business model for free cash flow ... we're focused on returns, not absolute growth," said CEO Ryan Lance.

Lance outlined a plan to return between 20% and 30% of its cash flow back to its shareholders through growing dividend and buybacks. ConocoPhillips expects to initiate the share buyback program this quarter. But management views the 20% to 30% payout "as an average through-the-cycle target," as Wallette added that in any given year, ConocoPhillips may exceed the top end of the range.

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