Phillips Petroleum Co. Accelerates Debt Repayment Amid High Oil Prices

Strategic Insights -

Phillips Petroleum Co., led by chief executive Jim Mulva, is making the most of high oil prices to pay down its debt, which soared to $6.5 billion after the acquisition of Arco Alaska Inc. from BP Amoco in April. The company aims to restore its top-drawer credit rating within the year and increase its investment spending in Alaska by $35 million to $550 million. Phillips is betting on long-term oil prices, with Mulva hoping to produce between 350,000 and 400,000 barrels a day for the next five years to offset natural decline at Prudhoe Bay.

Key Takeaways:

  • Phillips Petroleum Co. plans to accelerate debt repayment, reducing debt from $6.5 billion to $6 billion in the second quarter of 2003.
  • The company took on significant debt to acquire Arco Alaska Inc. from BP Amoco, but is now using high oil prices to its advantage.
  • Phillips aims to produce between 350,000 and 400,000 barrels a day for the next five years to offset natural decline at Prudhoe Bay.
  • The company will spend $50 million to drill at least 12 exploration wells in the next year to discover new oil sources.
  • Development at fields like West Sak will be stepped up to increase production and offset the decline at Prudhoe Bay.
  • Phillips expects to have positive cash flow from its Alaska business when oil prices reach $11.50 per barrel and will post a profit when prices hit $15.50 per barrel.
  • A decrease in oil prices to single-digit levels, as occurred in late 1998, could hurt the company.

Statistics:

  • Debt reduction: $500 million in the second quarter of 2003, from $6.5 billion to $6 billion.
  • Investment spending in Alaska: increased by $35 million to $550 million.
  • Oil prices: ranged between $25 and $30 per barrel since the deal.
  • Long-term oil price expectation: $18.50 per barrel.
  • Production goal: 350,000 to 400,000 barrels per day for the next five years.
  • Exploration wells to be drilled: at least 12.
  • Development spending at West Sak: increased to accelerate production.

Sources:

  • Phillips Petroleum Co.
  • Jim Mulva, Chief Executive
  • Arco Alaska Inc.
  • BP Amoco
  • Fahnestock and Co. - Fadel Gheit, oil industry analyst
  • Ben Spiess, reporter
  • Phillips Petroleum Co. (adn.com, source for credit rating downgrade and Jim Mulva quotes)
  • Bloomberg Business News, (AP, June 24, 2003, source for debt reduction and investment spending increase)