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ConocoPhillips U.S. Growth Linked to Liquids, Says Incoming CEO

ConocoPhillips will say goodbye to the ranks of Big Oil and move to the top of the North America's pure-play explorers list at the end of this month, with a U.S. focus on liquids-rich opportunities, the incoming CEO said Monday.

Ryan Lance, who now leads international exploration and production (E&P) and who will take over the "new" ConocoPhillips beginning May 1, led a conference call with energy analysts. Phillips 66, which will house the refining and marketing businesses, will officially separate on April 30.

Production growth from ConocoPhillips "will take us to over 1.8 million b/d by 2016," he told analysts. Output from the E&P company this year is forecast to be 1.55-1.6 million boe/d.

By 2016, 26% of North American production will come from liquids-rich U.S. unconventionals in the Eagle Ford and Bakken shales, as well as the Permian Basin.

"We just really have scratched the surface right now," Lance said. "We've got to work on that. You want to be certainly a first mover or a very, very fast follower, and that's our intention."

The Houston-based company now is eyeing seven unconventional opportunities in North America that may become part of its portfolio, he said.

North America is especially "impactful," said Lance, with 3-5% production compound average growth return projected from high-return programs. The company's technical strengths, he said, are in unconventionals, the Arctic and in heavy oil.

By 2016 the Lower 48's unconventional plays are expected to provide 210,000 boe/d, while Canada's oilsands are slated to produce 80,000 boe/d. In total, the upstream company is forecast to produce more than 550,000 boe/d.

ConocoPhillips has 228,000 net acres in the Eagle Ford, with 77% weighted to liquids. It plans to invest $2.3 billion in the play this year to drill more than 180 wells using 16 rigs.

In the Permian Basin the company has 1.1 million net acres that are 60% liquids. About $600 million is to be invested this year with more than 300 wells planned. The company has "exposure in every play," and more than 7,000 gross identified well locations. Especially promising are the Avalon and Wolfcamp plays, said Lance.

And in the Bakken Shale, ConocoPhillips holds 207,000 net acres with a plan to spend $500,000 this year. It has an estimated drilling inventory of 1,300 gross proved and probable drilling locations -- more than 120 wells are planned this year.

Expansion into other unconventional areas also will be forthcoming said Lance.

ConocoPhillips doesn't have to add to its portfolio because it already has a solid warehouse of resources around the world -- unconventional and conventional, onshore and in the offshore. Globally the company has an estimated 43 billion boe of resources to convert to captured reserves that would "provide a means to deliver growth well beyond 2016," said Lance.

Still on the table are plans to sell $8-10 billion of the global holdings that just don't fit into the revamped strategy. Among them are North American gas fields, whose promise has fallen as gas prices have tanked.

ConocoPhillips as a pure-play E&P would be unique among its competitors in that it would have the "best features of a large independent combined and the returns focus of a major," said Lance. "But we will never be too big or too slow [to react]. We will have a deep inventory combined with sophisticated technology opportunities. These characteristics will carry on with us...with an exclusive upstream focus..." Without the burden of integrated operations, ConocoPhillips would have the "competency of a major but the focus of an independent."

The biggest challenge facing ConocoPhillips and its peers in building unconventional oil and gas output in the United States "starts and ends with infrastructure," Lance said. The producer now is working to not exceed infrastructure in its onshore plays, especially in the Permian Basin. Despite the play's longevity, the abundance of new resources has made building new infrastructure critical, he said.

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