ConocoPhillips (COP) inked an agreement with the Greka unit of China-based Green Dragon Gas Ltd. (GDG) to develop wells at Greka’s Chinese coal bed methane (CBM) production sharing contracts.

Under the terms of the agreement, ConocoPhillips will make an initial payment of $20 million to Green Dragon and would also fund up to a total of $30 million of the capital expenditure to develop wells at the Shizhuang South, Shizhuang North and Qinyuan blocks in China.

Apart this, ConocoPhillips’ creation of an Australasian natural gas business in 2008 focused on coalbed methane production and LNG processing with Origin Energy (a leading Australian integrated energy company) is expected to cement the company’s competitive position in the rapidly growing LNG market.

ConocoPhillips may continue with a second phase of development and pay $120 million to acquire 50% of Greka’s interest in three of its six Chinese CBM production sharing contracts.

ConocoPhillips added a number of high impact projects and achieved exploration successes in offshore China, Vietnam and the Gulf of Mexico regions. The company anticipates strong growth in the Asia-Pacific, Russia, the Caspian and the Middle East regions to offset natural declines in its North American and North Sea assets.

While recent turnaround in crude oil prices is beneficial to the entire sector, we are maintaining our Neutral recommendation on ConocoPhillips shares, given the company’s disadvantages relative to its super major peers. These disadvantages include a high-cost OECD-centric asset base and heavy exposure to the relatively tentative outlook for U.S. natural gas (about one-third of total volumes) and refining markets.

Zacks Investment Research
View original at: Zacks.com News Feed

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