Conoco Resumes Refinery Bidding

ConocoPhillips (COP - Analyst Report), along with Saudi Aramco, will resume bidding for the construction of a 400 thousand barrels per day (MBbl/d) refinery at Yanbu Industrial City in Saudi Arabia.

Initial offers have been issued to various local and global contractors for early work, and major packages include a coker unit, crude facility, gasoline unit, hydrocracker, tank farm, offsite pipelines and high voltage electrical packages. These offers are expected to be awarded in November this year, while the remainder is due in the second quarter of 2010.

The proposed refinery will be capable to process heavy crude supplied by Saudi Aramco, and is expected to produce high-quality, ultra-low sulfur refined products. The new refinery’s capacity to process heavy crude would further boost COP’s margin capture rates.

In a situation when overall market conditions are favorable, a refinery construction -- which will be able to produce competitive refined products with higher margins -- will definitely help the company add to its bottom line.

However, a heavy exposure to the relatively tentative outlook for U.S. natural gas (about a third of total volumes) and refining markets remain our concerns. As such, we maintain our Hold recommendation on COP shares given the company’s competitive disadvantages relative to its super-major peers such as Chevron (CVX - Analyst Report) and Exxon (XOM - Analyst Report).