Lower 48 and Canadian natural gas production has fallen steadily for the past two years and has become a "shrinking part of the portfolio" for ConocoPhillips, CFO Jeff Sheets said Wednesday.
Reaffirming comments by CEO Jim Mulva in March, Sheets outlined the company's strategy to pursue oily shales in the United States and oilsands in Canada (see Daily GPI, March 24). The third tier of future growth is tied to overseas liquefied natural gas projects.
The strategy has been evolving for a couple of years, the CFO explained during a quarterly earnings conference call. North American gas output contributed 28% to total production in 2009, falling to 26% in 2010. By the end of this year gas output will account for about 24%.
Blame it on gas prices, which "continue to be subdued," he said. And with no signs of price recovery in sight, "we're shifting away from Lower 48 and Canadian gas...and pursuing unconventional opportunities in North America."
The explorer today is concentrating its U.S. onshore efforts in the Eagle Ford, North Barnett and Bakken shales. The most promising, said Sheets, is the Eagle Ford leasehold, where the company is producing around 20,000 boe/d; at the end of March output was 71% weighted to liquids.
"We remain encouraged by the results in Eagle Ford," he said. "The early results were better than expected; production has not declined as fast as we had premised." By the end of this year ConocoPhillips plans to be running 14 rigs there.
"We're also active in liquids-rich areas of the Bakken, North Barnett and Permian [Basin]. We have 10 rigs [total] in those areas, and will be up to 12 this year." Encouraging results also are expected from the Wolfcamp leasehold in the Permian Basin. The company acquired 33,000 net acres in the play during the latest quarter from an undisclosed seller.
ConocoPhillips now has 20 rigs running in the U.S. onshore. "All of the Lower 48 will have twice as many rigs by year-end than in the first quarter of last year," said Sheets. By the end of this year the onshore plays are expected to produce a total of around 65,000 boe/d.
Sheets was discreet on ConocoPhillips' plans to pursue more onshore properties. However, he said the company was "continuing to evaluate the resource plays we have...for incremental investment opportunities."
ConocoPhillips reported a jump in quarterly net income from a year ago to $3 billion ($2.09/share) from $2.1 billion ($1.40). Revenue rose 27% to $58.25 billion.
Production totaled 1.7 million boe/d, a decrease of about 125,000 boe/d versus the same period in 2010. Field decline, primarily in the North Sea, Lower 48, China and Alaska, decreased production by about 190,000 boe/d, which was largely offset by about 180,000 boe/d of new production and improved well performance.
The new production primarily came from the Lower 48 liquids plays, the Qatargas 3 LNG project and the Bohai Bay program in China. Asset sales in 2010 and in 1Q2011 also negatively impacted year/year production by about 50,000 boe/d.
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