ConocoPhillips has shut in some of its dry gas production in North America, but in the liquids-rich Eagle Ford Shale, it's full steam ahead.
The Houston-based producer is accelerating plans for the South Texas play through the rest of this year and in 2011, CEO Jim Mulva said Wednesday. He and Clayton Reasor, vice president of corporate affairs, spoke with energy analysts during a conference call.
Although the budgets for the coming year are not finalized, Reasor said capital spending in the Eagle Ford Shale is expected to be $1-1.5 billion, a hefty increase from this year's expected total of $300,000.
All of the increased spending is to go for drilling and completion costs -- no additional Eagle Ford acreage is included in the numbers, Reasor noted.
"These wells generally are producing around 1,500 boe/d [over a 30-day average rate], and well costs are running in the $8 million to $9 million range," Reasor told analysts. The ultimate reserve numbers are still being determined "but we are really encouraged by what we've seen so far."
ConocoPhillips' North American oil portfolio is "not well understood," noted Mulva. "But what we have in the Eagle Ford, in the Bakken, in the North Barnett and other areas that we have...We are more and more encouraged all the time and that's why we're increasing our spending by $1 billion [in the Eagle Ford] in 2011. We feel real good about that."
The company currently is operating nine rigs in the Eagle Ford, with 15 wells successfully drilled and eight completed in 3Q2010. The "pace of activity" is expected to increase through the rest of this year and into 2011.
In addition, ConocoPhillips has completed a second well in Poland to test a "possible" shale gas play. More tests on the first well are under way.
In the last part of the third quarter the Houston-based producer curtailed about 150 MMcf/d in Western Canada and a total of about 35 MMcf/d in the San Juan Basin and the Bossier Shale in response to continuing low gas prices.
"We would do more curtailments if we could," Mulva said. "But we have partners...smaller independents, private producers...that won't go along with curtailments. But we think [gas] has more value in the future."
ConocoPhillips could produce more gas through the rest of this year and in 2011, Mulva said. "But that doesn't make a lot of sense for dry gas...for a lot of places in North America. If we wanted production to be higher, we could do it, but why spend the money?"
Asked when or what the breakeven price would be to bring the shut-in gas back on line, Mulva said the company could "get breakevens even today if we produced this [gas]. But we're not willing to push volumes and essentially just break even.
"The market won't sort it out in the short term, but it will become less dysfunctional, there will be more demand...Really, the way we look at it...prices today are...unsustainable. We have to see [gas prices] moving toward a $4, $5 range, and that we think with time will come. That's what is factored into our decision."
ConocoPhillips' breakeven price for Western Canadian gas is $5.50-5.75/Mcf, while the breakeven in the Lower 48 states is $3.75, said Reasor.