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ConocoPhillips Forecasting Gas Prices of $4-8 for Next Five Years

May 18, 2009
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Natural gas prices will be in a range of $4-8/MMBtu, and oil prices will average $60-80/bbl over the next five years, ConocoPhillips CEO Jim Mulva said last week.

Speaking in Houston at the company's annual shareholder meeting, Mulva said the company is going through "tough times" that are more difficult than any he's experienced in his 36 years at the company. The oil major in April reported 1Q2009 profits were down 80% from the year-ago period (see NGI, April 27). Capital spending for 2009 was slashed by almost 40% to $12.5 billion from 2008 levels.

Adding to the volatility in earnings and prices, ConocoPhillips since the beginning of the year has laid off around 1,300 people worldwide, and its share price has fallen by almost half the $80/share year-ago levels. The stock was trading at midday Friday at around $44.38/share.

In addition, exploration and production (E&P) chief Jim Gallogly announced his resignation last week to become CEO of LyondellBasell Industries. Ryan M. Lance and Kevin O. Myers were tapped to run the upstream division. The previous three executives to head E&P at ConocoPhillips all have left the company, and some energy analysts have expressed concerns about senior management.

"Better times are ahead," Mulva told the 300-plus crowd.

There are some concerns over which ConocoPhillips has less control, said Mulva. Producers may be facing more stringent regulations, less access to production areas and higher taxes under the Obama administration and the Democratically controlled Congress. And because of that, he said the industry needs to become more proactive in explaining how it contributes to the global economy.

The push for more renewables is commendable and understandable, but if more renewables in the mix come by taxing producers who looking for new resources, that doesn't make sense because fossil fuels will continue to provide 80% of the world's energy for decades to come, he noted.

"We are a very vital, integral part of the success of our economy, our standard of living," Mulva said. "Yes, we're for all forms of energy, but let's also not lose sight of the importance of oil and gas."

Even though the recent slight uptick in commodity prices suggests some improvement in the economy, ConocoPhillips would have to see oil prices of $70-80/bbl before it raised its full-year 2009 capital spending above $12.5 billion, said the CEO. With oil at $70-80/bbl, "that's good for the consumer. It's also a good enough price for us to be making investments, replace our resources, grow our production."

Expected federal climate-change legislation will be costly for the energy industry, no doubt, he said. ConocoPhillips has been pushing for a cap-and-trade system over a tax to reduce carbon dioxide emissions. Cap-and-trade, said Mulva, would be beneficial for the company because it has been working to make its facilities more energy efficient.

Some of the shareholders at the meeting questioned ConocoPhillips about its energy efficiency strategy.

The company's future could be in jeopardy if management continues to work on ways to reduce fossil fuel consumption, said shareholder Thomas Borelli. He told Mulva that ConocoPhillips needed to become more "active" in explaining how it contributes to the U.S. economy, and explain what it does, how many people it employs and the amount of taxes it plays.

"You need to go on the offensive," Borelli told Mulva.

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