ConocoPhillips (NYSE:COP) is showing renewed interest in the lucrative Asia-Pacific oil market. It is gearing up to resume its biggest Chinese operations as well as having made a “final investment decision” on the Malaysian offshore project as it divests from China’s neighbor Kazakhstan. These represent an important diversification tool as the world heads towards a stagflationary low-growth period.
There are three big deals to look at:
1. Kazakhstan’s government owned KazMunaiGas has acquired the 24.5% stake in the Nursultan offshore oil project in the Caspian Sea from ConocoPhillips at an undisclosed price. The block holds recoverable oil reserves of 270 million tons, and commercial production is expected to start in the next three years. The Kazak government is now the biggest shareholder in the block with a 75.5% stake while the rest lies with Mubadala, an Abu Dhabi based state owned enterprise.
2. China’s State Oceanic Administration (SOA) agency has revealed that ConocoPhillips will gradually resume full operations at the Penglai 19-3 field located in the northern Bohai Bay. Production from the field was halted in September 2011 following a leakage of 3,345 barrels of oil after which its owners paid $267 million as compensation. But since a new environmental assessment and development plan has been approved work is now going to start under supervision of government authorities, specifically the SOA. The field, which is the largest Chinese offshore oil field, is jointly owned by ConocoPhillips (49%) and China’s offshore giant CNOOC Limited (ADR) (NYSE:CEO) (51%). The American firm will act as an operator, and the field is expected to produce 168,000 barrels per day. Prior to the oil spill, ConocoPhillips was producing 62,000 barrels per day, and by the end of September 2012 its output from the field had dropped to 45,000 barrels per day.
3. Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s Malaysian arm, Petronas Carigali, and ConocoPhillips have finally decided to start developing the Malikai oil field offshore of Sabah state. The field is operated by Sabah Shell Petroleum Company, and its production sharing contract (PSC) represents the country’s third deep water project. Both Shell and ConocoPhillips hold 35% stake each in the project while Petronas Carigali holds the remaining shares.
Asia-Pacific is an important part of the ConocoPhillips growth story with production increasing 11% in 2012. These projects beginning and coming back on line are an important part of the company’s realignment it went through in 2012, raising cash through asset sales and the splitting off of its downstream business as Phillips 66 (NYSE:PSX), which will serve investors well as we move through 2013.