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ConocoPhillips Eyes Larger Role in Global LNG Trade through Sempra, Qatar Partnerships
Houston-based ConocoPhillips is looking to leverage its experience as a leading natural gas marketer to become a more active player in the global LNG market, CEO Ryan Lance said Thursday.
Lance hosted a conference call to discuss the mega-independent’s second-quarter results.
ConocoPhillips is among the largest oil and gas producers in North America, with a substantial presence in the Permian Basin, as well as the Eagle Ford, Bakken and Montney shales.
The producer during the first quarter took the No. 2 spot in NGI’s ranking of North American natural gas marketers, posting a 10% year/year increase in transacted volumes.
Last month it inked a nonbinding heads of agreement (HOA) with Sempra Infrastructure that could give ConocoPhillips a 30% equity stake in the unsanctioned Port Arthur liquefied natural gas export terminal east of Houston.
The HOA also lays the framework for ConocoPhillips to offtake 5 million metric tons/year (mmty) of LNG from the terminal under a 20-year tolling arrangement. Under the integrated model laid out in HOA, ConocoPhillips would supply the gas for its 5 mmty offtake.
“We’re marketing 7-to-8 Bcf/d of gas in North America, so the opportunity to supply gas into a multiple train project at Port Arthur, TX, is intriguing to us,” Lance told analysts during the call. He said “we’ve got a lot of experience” moving gas to the North American and global markets, noting the commercial teams in Japan, London and Singapore. As a result, “We’re used to both the European and the Asian markets,” the CEO said.
ConocoPhillips’ gas marketing unit moves “orders of magnitude above our physical production” of gas, “so the optionality [of] being able to supply LNG regas facilities is pretty interesting to us,” CFO Bill Bullock said.
“We’ve got a history of well over 40 years of marketing LNG through Asia.”
Lance also cited the opportunity to supply gas to Sempra’s LNG projects under development on the west coast of Mexico.
In addition to the Sempra HOA, ConocoPhillips is among the partners named by QatarEnergy to develop the North Field East project, which would expand the country’s LNG export capacity to 110 mmty from 77 mmty. ConocoPhillips is set to hold a 25% interest in the partnership, pending regulatory approvals.
Qatar produces “some of the lowest priced gas in the world, and it’s going to fit well globally to be directed to both Asia and to Europe going forward,” Lance said.
What About The Inflation Reduction Act?
On the homefront, Lance said he has “mixed views” about the Inflation Reduction Act legislation proposed by Senate Democrats.
He questioned the necessity of the proposed bill’s methane fee, given that the Environmental Protection Agency already is tightening regulations on emissions from the oil and gas industry.
“I’m not sure if it’s a good time ever to be increasing taxes and increasing government spending,” Lance said with respect to the bill.
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“Now, specific to our industry, at least the agreement recognizes that natural gas and oil are an important part of the energy transition, and they’re going to be here for decades.”
Lance also stressed a need to streamline federal permitting under the National Environmental Policy Act. He noted that oil and gas, as well as renewable projects, are affected by delays under the current system.
High Prices = Earnings Growth
ConocoPhillips’ Lower 48 production during the quarter averaged 977,000 boe/d, including 634,000 boe/d from the Permian, 233,000 boe/d from the Eagle Ford and 91,000 boe/d from the Bakken.
Total production was 1.69 billion boe/d, up 104,000 boe/d versus the same period last year.
In Canada, drilling and completion activities continued at ConocoPhillips’ Montney Shale acreage, while construction progressed on the second phase of the company’s natural gas processing facility, management said.
ConocoPhillips said that higher realized prices were the primary driver of year/year earnings growth during the period.
The company fetched an average price of $88.57/boe, up 77% y/y, “as production remains unhedged and thus realizes the full impact” of market price changes.
“The second quarter delivered strong financial results and presented outstanding opportunities to accelerate progress on our triple mandate to reliably and responsibly deliver oil and gas production to meet energy transition pathway demand, deliver competitive returns on and of capital for our shareholders, and achieve our net-zero operational emissions ambition,” said Lance.
“We’re increasing our targeted 2022 return to shareholders by an additional $5 billion while taking steps to meet transition demand with recent announcements to expand our global LNG portfolio.”
On the environmental front, Lance highlighted that ConocoPhillips has joined the Oil and Gas Methane Partnership (OGMP) 2.0 initiative. OGMP includes more than 80 global oil and natural gas companies committed to a “comprehensive, measurement-based reporting framework” for methane emissions.
ConocoPhillips reported net earnings of $5.1 billion ($3.96/share) for the second quarter, versus 2Q2021 earnings of $2.1 billion ($1.55).
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