Conoco-Phillips merger means more investment in Asia
Dow Jones, Singapore
The planned merger of Phillips Petroleum Co. and Conoco Inc. will expand the new company's portfolio in Asia and position it for further expansion, particularly in the region's upstream sector, according to analysts.
With little overlap in Phillips and Conoco operations in the Asia-Pacific and given that Asian oil demand growth is expected to continue outfacing demand in the rest of the world, the new company isn't expected to shave any of its Asian operations but rather increase investment in the region, a Merrill Lynch analyst based in Singapore said.
But exact plans for its Asian operations aren't yet clear. "It's too early in the overall process to be able to detail specifics from a regional standpoint," a Houston-based Conoco spokeswoman said.
However she said that Southeast Asia will remain a "high- potential, high-growth area for focused expansion."
Phillips and Conoco are expected to complete their merger in the second half of 2002 making ConocoPhillips the sixth-largest oil and natural-gas company in the world and the largest U.S. refiner.
Gordon Kwan, an analyst with HSBC Securities in Hong Kong said, "I think that with the larger capital base they certainly have the strength to expand more in Asia...and as a larger company they'll be able to better compete with oil majors like ChevronTexaco Corp.."
"Asia is a very important growth market for oil, not the U.S. and not Europe," Kwan added.
Once the merger is concluded, the new company is expected to boast Conoco's upstream and downstream investments in Southeast Asia, and Phillips' upstream investments in China's Bohai Bay and offshore Australia.
But analysts said much of the new company's focus in Asia will be fixed on China.
Phillips holds a 49 percent stake in China's largest offshore oil discovery. The field, Penglai 19-3 in Bohai Sea in northern China, was discovered two years ago and holds 600 million metric tons of oil.
Phillips also holds a stake in Australia's Bayu-Undan gas field, which is estimated to hold about 3.4 trillion cubic feet of gas. The company also has a stake in the Sunrise gas field, offshore Australia, which is currently under dispute over development options.
Phillips shareholders in turn get Conoco's upstream and downstream operations in Southeast Asia, particularly resource- rich Indonesia and Vietnam.
Prior to the merger announcement, Conoco said its upstream operations in Asia would account for about a quarter of its net earnings within five to six years, largely driven by existing investments in Indonesia and Vietnam.
Conoco's oil block in Vietnam is expected to start producing oil in October 2003. Total output is expected to be around 200 million-400 million barrels of oil.
Conoco's US$4.3 billion takeover of Gulf Canada Resources Ltd. this year expanded its holdings in Indonesia's Sumatra, Java and the West Natuna Sea.
Gas from the West Natuna field has been sold to Singapore's SembCorp Industries Ltd. and Malaysia's Petroliam Nasional Bhd. or Petronas.