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ConocoPhillips Seeking 'Attractive Opportunities'

October 29, 2012
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ConocoPhillips on Thursday reported that lower natural gas and oil prices dampened 3Q2012 results, but U.S. production helped lift the independent above analyst expectations.

In its first full quarter as an independent, now the largest in North America after spinning off its refining arm in May, ConocoPhillips reported profits fell 31% year/year in 3Q2012 to $1.8 billion ($1.46/share) from $2.62 billion ($1.91). Excluding one-time items, which included gains on asset sales, adjusted earnings from continuing operations were higher at $1.44/share from $1.40. The year-ago period included about $1.14 billion in contributions from discontinued operations. The latest results beat Wall Street's estimate of about $1.19/share.

CEO Ryan Lance told analysts during a conference call that he expects capital spending this year to be $15.5-16 billion, slightly less than the $16 billion mark that he had predicted at the end of June.

"Where we end up in this range depends on whether or not we find attractive opportunities to add to that unconventional acreage," he said. "We continue to be opportunistic in the market for acreage that fits well in our portfolio."

The producer still is repositioning itself after launching a plan in 2009 to "shrink to grow," in which former CEO Jim Mulva started to improve the balance sheet and sell off noncore properties (see NGI, Nov. 2, 2009). The plan included selling $15-20 billion in properties, spinning off the refining arm as Phillips 66, and share buybacks. Since the beginning of this year, Lance said ConocoPhillips asset sales totaled about $2.1 billion. With most of the paring done, the company in North America plans to buy in some areas where the price and acreage are right.

"We continue to make progress on our divestiture program. Completing this program will improve our portfolio, reset our base for future growth and add financial flexibility to the company," said Lance. "A key part of our strategy is to grow organically. Our exploration program continues to build momentum both on the unconventional and conventional side of the business..."

Operations-wise, "we achieved the high end" for production in 3Q2012 at 1. 525 million boe/d," he said. "This performance represents an important milestone for ConocoPhillips. We achieved 3% year-on-year volume growth when adjusted for dispositions."

In the Gulf of Mexico, the deepwater portfolio continues to hold future opportunities, said Executive Vice President Matt Fox, who is in charge of exploration and production. "Just for some context, we have 1. 5 million deepwater acres in the Gulf making ConocoPhillips the sixth largest deepwater acreage holder there. Our initial strategy for this area has been to participate in nonoperated wells while building a competitive operating portfolio..."

Production from the top onshore play, the Eagle Ford Shale, is expected to peak at 100,000 boe/d in 4Q2012. In the latest quarter the South Texas play peaked at 86,000 boe/d, a record for the company. Average production in 3Q2012 was 76,000 boe/d. The "entire" Eagle Ford leasehold should be held by production by the end of 2013 "and that's important because it allows us flexibility to find new technologies and thoughtfully determine the most capital efficient way," Fox said.

In the Bakken Shale, the producer now has more than 620,000 acres, all held by production. At the end of September the production rate was 26,000 boe/d. As a result of incremental capacity from new rail facilities, the company has ramped up to eight rigs from five.

"We also have significant exploration activity under way in other unconventional plays in the Lower 48," Fox said, including the Permian Basin, the Niobrara formation and the San Juan Basin. "I should note that these are just a few of the opportunities we're evaluating in our vast Lower 48 land possession, and we continue to identify other potential plays where we can acquire unconventional acreage at the right prices."

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