Successful drilling results in the Eagle Ford Shale of South Texas led ConocoPhillips to increase its spending in the play through the rest of the year, the Houston-based major said Wednesday.

As many as 12 rigs could be running in the shale play by the end of the year, which would be double the current number of rigs, CEO Jim Mulva told investors during a conference call. ConocoPhillips has drilled 13 wells in the play to date and given the "encouraging results," it plans to up its capital spending for the full year to $450 million.

The producer's initial production rates in the Eagle Ford are ranging between 1,500 boe/d and 2,500 boe/d. The "best well" so far produced at a rate of 6 MMcf/d in gas and 1,600 boe/d in oil. Onshore in the oil-heavy Williston Basin, ConocoPhillips now is producing around 30,000 b/d in the Bakken Shale. More spending also is slated for the Permian Basin.

The "sources of growth in North America include the Eagle Ford, Permian and Bakken, and then up into the Horn River and Montney...those are probably longer, beyond the 2011 timeframe," said Mulva.

ConocoPhillips last year announced plans to sell around $10 billion of its worldwide assets, including 10% of its North American portfolio (see Daily GPI, Oct. 29, 2009). On Wednesday it agreed to sell all of its near-20% stake in Russia's LUKOIL by the end of 2011 to enhance company returns. The proceeds primarily would be used to repurchase company shares, said Mulva.

ConocoPhillips also has several of its North America assets for sale, including its 25% stake in the Rockies Express Pipeline (REX) (see Daily GPI, Nov. 18, 2009). The company now has a data room open for REX and some other properties; news on anticipated sales should be ongoing through this year, said the CEO.

Mulva spent part of the conference call blasting the U.S. government for the deepwater drilling moratorium in the Gulf of Mexico (GOM). Only around 1% of ConocoPhillips' current output comes from the GOM deepwater and the latest quarter's results were not "significantly" impacted by the drilling moratorium, but it's time "to get this industry back to work," he said.

"We are ready to work, we have to do this...If we don't, drilling rigs and people will start to leave the Gulf permanently or for one or two years. When we look at the Gulf of Mexico, we know the resources are there...we need to develop our indigenous puts people to work, and employment leads to returns..."

However, ConocoPhillips and other producers have "got to know what the risk rewards are more quickly than we've seen so far," said the CEO. "For our company, for the past several years, before the Deepwater Horizon incident, we were underrepresented in the Gulf. Now we want to have more of a position and we've been picking up acreage pretty aggressively and farming in" with other producers.

The company, together with ExxonMobil Corp. and Royal Dutch Shell plc, is helping to build and deploy a rapid response system to improve the industry's capability to contain potential underwater well blowouts in the deepwater GOM (see Daily GPI, July 23).

"With the Deepwater Horizon incident, we don't think that's to our advantage, but it may not be to our disadvantage," said Mulva. "We have the capability, the technology, the experience...If we wanted to be opportunistic, we are the right type of company to do this."

If smaller producers want to stop exploring in the deepwater, "we want to do more in the Gulf of Mexico," said Mulva. "But we won't do more unless we know what the risk rewards are going to be."

Quarterly profits jumped from a year ago to $4.2 billion from $900 million, with most of the gains coming from asset sales. Excluding the $1.7 billion net benefit in the quarter, adjusted earnings in 2Q2010 were $2.5 billion ($1.67/share) versus $1 billion (66 cents) a year ago.

"We had a solid quarter, with strong earnings and meaningful progress in executing our plans to create value," said Mulva. The exploration and production (E&P) unit "delivered production volumes and costs in line with expectations, while our R&M [refining and marketing] business benefited from improved global refining and marketing margins and higher U.S. refining capacity utilization rates."

The E&P segment produced 1.73 million boe/d in the latest quarter, down from 1.87 million boe/d in 2Q2009. Around 140,000 boe/d of the decline was from normal field decline, primarily in North America, the United Kingdom and Norway. New production of 75,000 boe/d in Canada and overseas partially offset these decreases.

In the latest quarter the company generated $3.5 billion in cash from operations and $5.8 billion in cash proceeds from asset dispositions, which was used to pay $2.7 billion of debt, fund a $2.2 billion capital program, repurchase $400 million of common stock and pay $800 million in dividends. The company had a cash balance of $4.1 billion at the end of the quarter, most of which will be used to pay down debt. At the end of June debt was $26.3 billion and the debt-to-capital ratio was 28%.

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