January 25, 2011 / 3:38 PM / 7 years ago

UPDATE 3-Conoco divestments hurt reserve growth

* KKR to buy Barnett Shale assets

* Shares of Conoco down 1.4 percent

* Conoco Q4 earnings due Wednesday

* 2010 oil and gas reserves 8.3 billion BOE (Rewrites, updates stock price)

By Anna Driver

HOUSTON, Jan 25 (Reuters) - ConocoPhillips (COP.N), the third-largest U.S. oil company, said on Tuesday its ongoing plan to divest assets, including part of its stake in Russian oil company LUKOIL, reduced its 2010 oil and gas reserves by 2.2 billion barrels of oil equivalent.

Conoco has an ongoing program to shed assets that the company believes are better suited in the hands of others as it focuses on improving returns by cutting debt and buying back shares. As expected, those sales have hit the Houston company’s oil and gas output and reserve growth.

Conoco has been selling down its 20 percent stake in LUKOIL (LKOH.MM). In the third quarter, Conoco said it had about 50 million shares left to sell.

Conoco expects to end 2010 with 8.3 billion BOE of proved reserves, down from 10.33 BOE last year, it said.

Excluding the U.S. oil company’s asset sales, the company said it added 920 million barrels of oil equivalent to its reserves in 2010 when divestitures are excluded, largely from fields in Alaska and Qatar and oil sands projects in Canada.

Conoco’s so-called “organic” additions brought its expected reserve replacement ratio to 138 percent of its 2010 production, the company said. In 2009, Conoco’s reserve replacement ratio was 141 percent.

In a separate announcement on Tuesday, Conoco and private equity firm KKR (KKR.N) said KKR’s energy and gas arm has purchased producing assets from Conoco located in the Barnett Shale in North Texas for an undisclosed amount. [ID:nASA01FF6]

The assets contain 93 billion cubic feet equivalent of total net proved reserves of which over 90 percent are producing, KKR said.

KKR declined to comment on the value of the deal.

Shares of Conoco fell 1.4 percent to $67.14 in late morning trading on the New York Stock Exchange. This compared with a 1.7 percent drop in the CBOE index of oil companies .OIX.

Conoco, based in Houston, is due to report its fourth-quarter earnings on Wednesday. (Additional reporting by Matt Daily in New York, editing by Gerald E. McCormick, Dave Zimmerman and Gunna Dickson)

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