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ConocoPhillips Taking Turtle-Over-Hare Approach in Lower 48

Slow and steady wins the race, an approach that ConocoPhillips is using to develop the Eagle Ford Shale and Permian Basin to ensure it can keep up with ever evolving technology, CEO Ryan Lance said Tuesday.

Speaking at the annual CERAWeek by IHS Markit conference in Houston, Lance said the largest independent in the country prefers a turtle-over-hare approach to develop its assets deliberately.

"We took a different path with the Eagle Ford,” Lance said of the South Texas play. “We didn't drill our brains out like some of our competitors did.”

In the Lower 48, ConocoPhillips mostly concentrates its efforts on the Eagle Ford and Bakken shales and the Permian. During the fourth quarter, Lower 48 output was 236,000 boe/d, a 12% sequential increase. Lower 48 production is expected to hit 300,000 boe/d this year.

The Eagle Ford was the initial drive for the Lower 48 efforts, and in the play the company slowed down to ensure infrastructure and technology were a match. It now is doing the same thing in the Permian, moving gains even higher.

"In two years, we'll figure out a better way to drill the Permian than we are drilling now," the CEO said.

Most of the gains are on the completions side as operators finesse fractures and longer laterals, which improves the bottom line too. Producers have improved drilling times to less than a week, but there’s more work that still needs to be done to improve completions and enhance recovery, he said.

As ConocoPhillips and many of its peers have improved efficiencies, there’s less concern about the volatile commodity price swings.

“Peak to peak and trough to trough, they’re getting closer together,” Lance said of the ups and downs of commodity prices. “It feels balanced today, but it feels tenuously balanced.”

ConocoPhillips has “decided to embrace volatility...We can predict that prices are going to go up and they are going to go down...but not necessarily in that order."

The Houston-based producer has reduced the sustaining capital program to $3.5 billion, a level that should keep global production flat at around 1.2 million b/d. About one-quarter of the portfolio is U.S. unconventional targets, with the remaining assets in Alaska, the North Sea and Asia Pacific regions.

Lance spent a few minutes discussing the pullback by members of the Organization of the Petroleum Exporting Countries, i.e. OPEC. The cartel has to embrace its role as the world’s “baffle” on prices to ensure crude oil markets remain stable, he said. That could lead to OPEC extending production cuts beyond 2018, even if U.S. onshore producers continue drilling.
Like nearly all of the CERAWeek speakers, Lance challenged a proposal by President Trump to tax imported steel by 25% and tax aluminum imports by 10%.

Improved drilling practices may offset some of the impact of the tariffs, but they no doubt will raise the cost of building pipelines, he said.

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