ConocoPhillips may seek to expand in the deep-water Gulf of Mexico, where it is 'under-represented' today, but it won't act until regulatory uncertainty created by the BP oil spill is cleared up, CEO James Mulva said Wednesday. 'We feel we are the right kind of company to do this,' he said, even if it is too early to judge what opportunities may exist while a ban on deep-water drilling is in effect. 'But we're not going to do this until we know what the rules are.'

ConocoPhillips, the third-largest U.S. oil company by market value, has been a latecomer to the deep-water Gulf, while rivals Chevron, Shell and others have scored big there in recent years. Less than 1 percent of ConocoPhillips' oil and natural gas production comes from the region today. That has limited the effects on the company of the Interior Department's six-month moratorium on drilling in the deep waters of the Gulf, which the department enacted after the April 20 blowout at BP's Macondo well, which killed 11 workers and started the worst oil spill in U.S. history.

But the company has boosted acreage holdings in the region in recent years and has bought into projects. This month, it also announced a $1 billion project with Shell, ExxonMobil and Chevron to develop rapid oil spill response technology for the deep-water Gulf. See: New oil spill containment system to protect Gulf of Mexico planned by major oil companies

The company could see a bigger opening in the region if new regulations make it more expensive for smaller oil and gas companies to operate in the deep water and assets became available at the right price, said Phil Weiss, industry analyst with Argus Research.

The prospect of the Houston-based oil company growing in the Gulf of Mexico comes as it is shedding billions of dollars worth of assets elsewhere to pay down debts and restructure the company. On Wednesday, ConocoPhillips took another major downsizing step, announcing a plan to sell its entire 19.2 percent stake in Russia's Lukoil after saying in March it would only sell half. That signals the end of a partnership that began in 2004, but that has never fully delivered on its promise of being a launching pad for more projects. 'The development of opportunities in Russia has not come as quickly as we would have thought,' Mulva said in a conference call to discuss the company's second-quarter results.

Lukoil has said it will spend $3.44 billion to buy 7.6 percent of ConocoPhillips' stake by Aug. 16. It has an option to buy the remaining 11.6 percent stake — valued at more than $5 billion - within 60 days or it will be sold on the open market. Mulva said sale proceeds will go to a stock buyback plan, in keeping with a strategy to boost shareholder value even as the company shrinks. Paul Cheng, analyst with Barclays Capital, said in a research note that the firm believes investors will 'react favourably to management's decision.'

Separate from the Lukoil transaction, ConocoPhillips said last fall it will sell $10 billion worth of assets over the next two years, chiefly to cut massive debts racked up from major acquisitions in recent years. In April, China's Sinopec agreed to pay $4.65 billion for ConocoPhillips' 9 percent stake in Syncrude, a Canadian oil sands venture, and last month Pilot Travel Centers bought the company's interest in the Flying J truck stop chain for $626 million.

Clayton Reasor, vice president of corporate affairs, said Wednesday that the company has received a "significant amount of interest from potential buyers" for a package of oil and gas properties in North America. ConocoPhillips expects asset sales to fetch up to $8 billion by the end of the year, with more to follow in 2011. Once debts are reduced, Mulva said, the company likely will keep about $2 billion in cash on hand and will consider expansion in the deep-water Gulf of Mexico and other acquisitions. 

Source: Houston Chronicle