ConocoPhillips reported lower overall second quarter production, but unconventional output surged, leading the super independent to raise 2018 guidance and increase capital expenditures (capex) to take advantage of higher-than-expected crude oil prices.
The Houston-based producer raised its operated capex budget to $6 billion from $5.5 billion, in order to take advantage of a West Texas Intermediate (WTI) crude oil price of $65/bbl. That price is significantly higher than the $50/bbl WTI price initially assumed by the company.
It also raised its full-year production guidance to 1.23-1.26 million boe/d from 1.2-1.24 million boe/d, based on higher-than-budgeted partner-operated activity, improved well performance across several of its operating areas, and a bolt-on acquisition in Alaska's Western North Slope.
Excluding Libya, ConocoPhillips reported 1.21 million boe/d of production in 2Q2018, down 214,000 boe/d from the year-ago quarter. Lower 48 production was 387,000 boe/d in 2Q2018, a 13.6% decrease year/year (448,000 boe/d). While natural gas production in the Lower 48 declined 48.1% to 593 MMcf/d from 1.14 Bcf/d in the year-ago quarter, crude oil production surged, increasing 21.8% to 218,000 b/d from 179,000 b/d.
Still, production from its Big Three U.S. onshore assets -- the Eagle Ford and Bakken shales and the Permian Basin's Delaware sub-basin -- grew 37% year/year, and reached a milestone of 300,000 boe/d "significantly ahead of schedule."
"We're benefiting from higher oil prices, but also driving underlying cash flow expansion," said CEO Ryan Lance. "In accordance with our priorities, we've differentially allocated excess cash toward debt reduction and distributions, while continuing to grow our diversified, low cost of supply resource base."
The company said it would shift a drilling rig from the Delaware to the Eagle Ford, and lay down a conventional rig deployed in the Permian. Third quarter production is expected to average 1.22-1.26 million boe/d.
Planning is also underway for an exploration drilling season in Alaska in 2019. Last week, the company said its Willow prospect in the National Petroleum Reserve in Alaska may hold up to 750 million boe, and could be rich enough to justify constructing a standalone crude oil hub in the region. A final investment decision on whether to proceed isn't expected before 2021.
Net earnings were $1.64 billion ($1.39/share) in 2Q2018, compared with a net loss of $3.44 billion (minus $2.78) in the year-ago quarter.