Conoco: Minimajor Costume Plus Suspect Barrel Quality Equals Market Discount.

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Bibliographic Details
Title:	Conoco: Minimajor Costume Plus Suspect Barrel Quality Equals Market Discount.
Source:	Black Book - Natural Gas in America: Selective Success Ahead. 2001, p88-94. 7p.
Subject Terms:	Stock prices, Earnings per share, Investors, Petroleum industry, *Assets (Accounting)
Geographic Terms:	United States, Canada
Company/Entity:	Conoco Inc. 008427692 COC.A
Abstract:	We see part of Conoco's weak P/E as resulting from foreign-risk and barrel- quality issues that will not quickly change. We are $0.40 above consensus EPS in 2001 and admire Conoco's cycle time of international business development. But without growth of Western barrels, and with political risk and hollow barrel quality, in addition to declining commodity prices, we rate the shares market-perform. The just-announced acquisition of Gulf Canada is directionally positive in building up a core North American asset base, but with 3-4% of earnings accretion, does not push us to alter our market-perform rating. Past downstream merger or joint-venture ideas could reemerge (perhaps with Phillips or Marathon) to further focus the strategy on the upstream; but then remaining political risk gains even more prominence, which could ripen Conoco for takeover by a major — not likely the intent of Conoco management. A positive scenario might include a large balancing acquisition by Conoco in the United States in addition to the Gulf Canada deal. Southeast Asia and Middle East project adds — a focus today — could each add 7-12% to EPS, but would grow political risk. New barrels from exotic locales like Vietnam now and maybe Iran and Libya one day may be on the way, but investors prefer paying for Western oil and gas. Limited leverage to commodity prices and unclear categorization of the company are likely to leave its share price in a narrow band of $27-$32 into 2002. [ABSTRACT FROM PUBLISHER]
Database:	Energy & Power Source

Description
Abstract:	We see part of Conoco's weak P/E as resulting from foreign-risk and barrel- quality issues that will not quickly change. We are $0.40 above consensus EPS in 2001 and admire Conoco's cycle time of international business development. But without growth of Western barrels, and with political risk and hollow barrel quality, in addition to declining commodity prices, we rate the shares market-perform. The just-announced acquisition of Gulf Canada is directionally positive in building up a core North American asset base, but with 3-4% of earnings accretion, does not push us to alter our market-perform rating. Past downstream merger or joint-venture ideas could reemerge (perhaps with Phillips or Marathon) to further focus the strategy on the upstream; but then remaining political risk gains even more prominence, which could ripen Conoco for takeover by a major — not likely the intent of Conoco management. A positive scenario might include a large balancing acquisition by Conoco in the United States in addition to the Gulf Canada deal. Southeast Asia and Middle East project adds — a focus today — could each add 7-12% to EPS, but would grow political risk. New barrels from exotic locales like Vietnam now and maybe Iran and Libya one day may be on the way, but investors prefer paying for Western oil and gas. Limited leverage to commodity prices and unclear categorization of the company are likely to leave its share price in a narrow band of $27-$32 into 2002. [ABSTRACT FROM PUBLISHER]