ConocoPhillips Shifts Focus - Coker Ready for $50 Million Update

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Created on Friday, 21 May 2010 08:59

Written by Douglas Beckett

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By Evelyn Pyburn

The refinery at Billings is likely to remain an important part of the future of ConocoPhillips even though company-wide a new strategy is being pursued – one with a

focus on the divestiture of refineries and more investment in oil production.

In an effort to gain “balance” the company is shifting emphasis from the “downstream” aspect of the business, to the “upstream,” explained Steve Steach, manager of the Billings refinery, in speaking to the joint boards of the Big Sky Economic Development Authority (EDA) and the Economic Development Corporation (EDC).

The continued importance of the Billings’ refinery is underscored by a $50 million project to update two coker drums, which will commence this spring, to be completed early next year. The improvement will enhance the refinery’s ability to handle heavier crude, primarily from Canada.

Steach said that he is confident that the Billings refinery will not be sold. “Billings is very strategic,” said Steach, “while it is one of the company’s smallest refineries, it is one of those with the highest returns.”

In a market in which there is a glut of refining capacity, there are two ways to achieve balance, said Steach, either “find more oil or get rid of refineries.”

ConocoPhillips will do both, by selling some of their 12 refineries in the US, with the long term goal of shifting their portfolio balance to 85 percent upstream and 15 percent downstream. That meansl concentrating more on oil production, including expansion in the Bakken. To that end they are transferring five employees to Billings, who will be involved in the drilling in eastern Montana and North Dakota.

It is hoped that by selling off about $10 billion of assets over the next two year, they will increase return on investment to ten percent.

Also part of the change in strategy will be the sale of half of their mining interest in Syncrude, a Canadian oil-sands company. They are selling that part of their investment which is involved in the surface mining of oil sands, and will focus more on the oil sands recovery process which relies on injecting steam into the oil sands, deep in the earth, to liquefy it and pump it to the surface. They also plan to sell off interests in a pipeline which brings Canadian crude into the mid-west.

Steach said that “interestingly,” even though the value of the Syncrude assets they want to sell were valued at about $3 billion, China is purchasing them for $4.65 billion.

The update of the two coke drums in Billings is a project of monumental proportions, involving an extraordinary amount of coordination and attention to detail. The gigantic 350 ton, 24-foot diameter, 100 foot long drums were manufactured in Japan. They were divided in half and shipped by ocean freighter to Longview, Washington, to travel by barge up stream on the Columbia and Snake Rivers to Lewiston, During June, the first two sections will be placed on special beam-and-dolly heavy-haul transporters to travel to Billings. The 700-mile road trip, at 35 mph, will require the temporary relocation of 800 power lines, traveling many back roads and traveling only at night to minimize traffic disruption. Once the halves of the first drum is delivered, the second will commence the road trip, with the intent of final delivery in late July.

ConocoPhillips is the second largest oil and gas company in the US, with $153 billion in assets. They had $153 billion in sales in 2009, netting a profit of $4.9 billion – about a three percent return on assets. The company has proven reserves of 10 billion barrels and a refining capacity of 26 million barrels a day.

ConocoPhillips is invested in Canada and in some 30 over seas countries, such as Australia.

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