1. Why is it important for ConocoPhillips to increase the value of its shares for its investors?

2. Research ConocoPhillips. How close has it come to raising the desired $10 billion?

ConocoPhillips, with headquarters in Houston, Texas, is the third largest American oil company. It has nearly 30,000 employees in offices in 30 countries around the world. But for two years running, Conoco did poorly in the New York Stock Exchange, with its shares losing 40 percent of their value. Conoco more than doubled its debt when it bought Burlington Resources Inc., a natural-gas producer, for $36 billion. At the end of a recent year, Conoco’s debt was three times that of the largest U.S. oil company, ExxonMobil, even though ExxonMobil was almost twice Conoco’s size in terms of revenue. How could Conoco turn itself around?

At its annual analyst meeting, the company announced plans to enhance its value to its shareholders by increasing dividends by 10 percent and buying back some shares of its stock. Another goal is to raise $10 billion by 2012.

ConocoPhillips will raise these funds through divestiture, selling off some of its noncore assets. The company said that these assets did not fit well strategically with its core operations, they had high operation costs, and they were marketable. The company acknowledged that it would lose from 80,000 to 120,000 barrels of oil production per day and 400 to 600 million barrels of oil equivalent in reserve. But it hoped to emerge leaner and stronger, with a renewed focus on core projects that would bring in a higher return on investment.

Jim Mulva, the chairman and CEO, said, “We are focused on creating and delivering value to our shareholders. We are taking decisive action to sell assets, reduce debt, build on our record of shareholder distributions, and improve returns while growing production and reserves per share,”

Some analysts believed that Conoco’s first priority was to sell its 9 percent stake in Syncrude, which one analyst referred to as one of Conoco’s “crown jewels.” Syncrude Canada Ltd. is located in the province of Alberta, just north of Montana, and is the world’s largest producer of synthetic crude oil from oil sand deposits. Conoco recently announced that it sold its share in Syncrude to China’s Sinopec for $4.65 billion, pending approval by the Chinese and Canadian governments. Mulva declared, “[W]e are pleased that [Sinopec] has recognized the value of this quality asset.”

Another of Conoco’s noncore assets was its 20 percent share in Lukoil, Russia’s biggest oil producer. Conoco had invested heavily in Lukoil in hopes of large profits on some joint projects with Lukoil, but those profits had never materialized. This was in part because of strict Russian regulations concerning foreign companies in important industries. Lukoil’s CEO, Vagit Alekperov, commented, “Initially, we were aiming for a large package of joint projects, but it turned out to be rather narrow, which probably also disappointed [Conoco].” At first, Conoco hoped Lukoil would buy back half of its stake, but Lukoil turned that offer down. Conoco then offered those shares for sale on the open market, keeping a 10 percent share in Lukoil. Conoco hopes to earn about $5 billion from that sale and use those funds to repurchase some of its stock from shareholders.

Conoco’s 25 percent share in the Rockies Express Pipeline is another of the company’s “crown jewels.” This high-speed, natural-gas pipeline runs almost 1,700 miles from northwestern Colorado to eastern Ohio. Conoco has offered its stake in the Rockies Express Pipeline for sale. Will ConocoPhillips achieve its goal of raising $10 billion by 2012? Time will tell.