Having already announced gross voluntary oil production cuts of 225,000 b/d for May because of weak prices, ConocoPhillips has now updated that amount to 265,000 b/d, management said Thursday.
The cuts will comprise 165,000 b/d in the Lower 48 and 100,000 b/d at the Surmount oilsands project in Alberta, a 50/50 joint venture with Total SA. On a net basis to ConocoPhillips, the cuts are expected to total 230,000 boe/d.
For June, the firm said curtailments would total 460,000 b/d gross*, made up of 260,000 b/d in the Lower 48, 100,000 b/d at Surmount and 100,000 b/d in Alaska, equaling 420,000 boe/d net.
The company also expects “some level of additional curtailments from infrastructure constraints, actions from partner-operated assets or government mandates.”
On a first quarter earnings call, CFO Don Wallete emphasized the voluntary nature of the curtailments, saying, “we haven’t faced the situation where we’ve had difficulties finding the market for our crude, not here in the U.S. and not anywhere in the world,” though he acknowledged, “that may be coming.”
Stressing a need for structural change and consolidation in the exploration and production (E&P) sector, CEO Ryan Lance said the “growth model is broken” for the oil industry.
“There’s too many names for investors,” he told analysts during the call, adding that the industry is “getting less relevant in market cap terms…There [are] some pretty tough discussions going on between boards and management right now.”
Lance said he expects “significant stress across the sector” over the coming months amid the supply glut and price plunge caused by the Covid-19 pandemic, and that the Houston-based producer is open to merger and acquisition opportunities, provided they meet the economic parameters and don’t put liquidity at risk.
Although the road ahead will be “very bumpy,” Lance said ConocoPhillips, the world’s largest E&P, entered the current downturn in a relatively advantaged position compared to peers, ending 1Q2020 with liquidity of $14 billion, including $6 billion under its revolving credit facility.
Lance also cited the diversified and relatively low-decline nature of the portfolio.
ConocoPhillips also does not support prorationing, i.e. mandatory production cuts, which have been discussed by the Railroad Commission of Texas (RRC) as a possible tool to balance the market, “because we think the market is going to ration that very quickly…either through both the voluntary type cuts that we’re taking or infrastructure and storage related cuts that become involuntary.” The RRC is meeting Tuesday (May 5) to vote on the proposal.
Total production excluding Libya was 1.28 million boe/d, down 40,000 boe/d from the year-ago period. Adjusting for closed and pending dispositions, production rose by 52,000 boe/d on a year/year (y/y) basis due primarily to growth from the “Big 3” Lower 48 unconventional oil plays, as well as development programs in Europe, Asia Pacific and the Lower 48.
Production from the Big 3 totaled 399,000 boe/d, comprising the Eagle Ford Shale (233,000 boe/d), Bakken Shale (96,000 boe/d) and Permian Basin (70,000 boe/d).
At its operations within the National Petroleum Reserve-Alaska (NPR-A), ConocoPhillips said the Greater Mooses Tooth No. 2 (GMT-2) oil project remains on track for startup in late 2021, and that it completed two appraisal wells at the Willow discovery and one at the Harpoon prospect before early termination of the 2020 winter exploration program due to Covid-19 risks.
In Canada, the first phase of development at the Montney Shale began with the startup of a 14-well pad and associated infrastructure.
Because of current uncertainty caused by the coronavirus, ConocoPhillips is suspending guidance until conditions stabilize.
ConocoPhillips reported a first quarter loss of $1.7 billion (minus $1.60/share), versus earnings of $1.8 billion ($1.60) in the similar 2019 period.
ConocoPhillips attributed the swing to a decline in equity market value of Calgary-based integrated oil company Cenovus Energy Inc., in which it holds a 17% stake, as well as lower realized prices and price-driven, non-cash impairments.
Unlike Royal Dutch Shell plc, ConocoPhillips is maintaining its dividend and committed to returning 30% or more of available cash to shareholders, Lance said.
*Correction: The original story incorrectly stated ConocoPhillips’ planned total production curtailments and the planned curtailment amount at the Surmount project. The figures have been corrected. NGI’s Shale Daily regrets the error.
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