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Major Projects Coming Online for ConocoPhillips, But Lower 48 Production to Slow

Despite an expected decrease in Lower 48 production for the second half of 2015, ConocoPhillips repeated its assertion that full-year production will increase 2-3%, thanks to five major projects around the world that are expected to come online before year's end.

Meanwhile, executives with the Houston-based major said they would continue to look for ways to optimize the company's portfolio, but said they will no longer make any early announcements that they were marketing any assets in particular. Among ConocoPhillips' assets: the Eagle Ford Shale, where the results of a pilot program have so far exceeded expectations.

Last week, ConocoPhillips reported 1.61 million boe/d of total production from continuing operations for 1Q2015, a 5.1% increase from the preceding first quarter (1.53 million boe/d). Total natural gas production for 1Q2015, including equity affiliates, was about 4.06 MMcf/d, a 0.2% increase from 1Q2014 (4.05 MMcf/d).

The company cut the number of operated rigs in the Lower 48 from 32 at the end of 2014 to 15 at the end of April. ConocoPhillips also plans to cut the number of rigs operating in Canada from 10 down to two for the rest of the year.

Despite the looming rig cuts, Lower 48 production increased 6.9% between 1Q2014 and 1Q2015, from 507,000 boe/d to 542,000 boe/d, respectively. Canadian production also increased between the two quarters -- from 280,000 boe/d to 318,000 boe/d, a 13.6% increase -- thanks in large part to growth from  the company's oil sands assets. Bitumen production increased 25.8%, from 124,000 b/d in 1Q2014 to 156,000 b/d in 1Q2015.

ConocoPhillips said it expected a production range of about 1.56 million boe/d to 1.6 million boe/d for the second quarter of 2015 (see Shale DailyApril 8).

During a conference call to discuss 1Q2015, Matt Fox, executive vice president for exploration and production, said ConocoPhillips is running seven pilot programs in the Eagle Ford, with particular attention on a triple stack concept and the Upper Eagle Ford.

"[We want] to understand what parts of our geographic extent of the Eagle Ford is going to be meaningful to the triple stock development," Fox said Thursday, adding that the results will become known through the end of the year. “I don't [expect to form] any definitive conclusions on just how much of the [area] will be developed...until maybe the later part [of 2015] or next year, frankly.

"We're going to get lot of new information from this year that, from a longer term basis, [will help] in terms of optimizing the Eagle Ford as a whole and other unconventional plays that we have in the portfolio...The initial results from single [pilot] well in the Upper Eagle Ford basically showed the production was the same as to Lower Eagle Ford...What we haven't [tested] yet [are] windows [that] are drilled in the context of a pattern of wells. Do we see interference? That's what we're testing these days [with the] seven pilots that we're running now."

The five major projects ConocoPhillips hopes to bring online before the end of the year are:

  • Surmont Phase 2, an oilsands project in Alberta which is currently more than 93% complete (see Shale DailyDec. 8, 2014);
  • The Australia Pacific Liquefied Natural Gas project, currently more than 90% complete, where ConocoPhillips has a 37.5% stake, along with Origin Energy (37.5%) and Sinopec (25%) (see Shale DailyMarch 4, 2013);
  • The Enochdhu oil field in the offshore United Kingdom, where ConocoPhillips and Chevron Corp. each have a 50% stake;
  • Drill Site 2S in Alaska's Kuparuk Field, where ConocoPhillips is operator and holds a 55.3% stake, along with joint venture (JV) partners BP plc (39.2%), Chevron (4.9%) and ExxonMobil Corp. (0.6%); and
  • CD5, a project to construct a drill site to access the western extension of the Alaska's Alpine Field in the National Petroleum Reserve-Alaska, where ConocoPhillips is operator (78% stake) and is JV partners with Anadarko Petroleum Corp. (22%).

ConocoPhillips also reported that its Kenai LNG operations resumed in April, and exports are set to restart this month. Fox said the spot sales of five or six LNG cargoes are preparing to be shipped to Japan.

CFO Jeff Sheets said the company would no longer make pre-announcements that it was marketing particular assets, but added that asset sales were indeed possible.

"You will hear stories probably on the marketplace that we're testing values, and that's what we'll always be doing as part of a prudent optimization of the portfolio," Sheets said Thursday. Any sale "really just depends on whether we're getting full value for the assets. It's always about whether we can sell the assets or at least what we think we could receive from in-value if we kept them in our portfolio. We don't know what that number is going to be, but there will be some level of asset sale."

Sheets said production in the Lower 48 is expected to decline during the second half of 2015, and the decline should continue into early 2016. But after that, the company expects to increase its rig count "toward the end of 2016, and based on our current assessment of how we'll put rigs back to work, they're probably relatively flat -- from the average of 15 to the average of six."

Sheets added that he didn't know what commodity prices the industry was looking for to eventually add rigs, "but in our plans we are planning the increases within 2016 modestly. We're going to increase as we move into 2016, and that's in the anticipation of some continued recovery in prices.

"In terms of the capacity, clearly we've laid down quite a bit of rig and the completion and capacity, and that can be brought back relatively quickly. [This] is a flexible industry that we have in the Lower 48, so exactly how quickly people bring these back on will be a function of the cash that we wanted to [bring] back in..."

Fox said ConocoPhillips has been refracking and using a diverter technology on some wells. "We see some potential there, particularly in wells that were drilled a few years ago and more recently drilled wells," he said. "We are continuing to evaluate that, but there is certainly some upside potential."

ConocoPhillips reported a loss of $222 million (minus 18 cents/share) in adjusted earnings for 1Q2015, compared to earnings of $2.25 billion ($1.81/share) in 1Q2014, $742 million in 4Q2014 and $6.6 billion for the full-year 2014. The company said earnings were negatively impacted by realized prices -- $36.96/boe in 1Q2015, down 48.1% from $71.21/boe in 1Q2014 -- and dry hole expenses.

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