ConocoPhillips last week said it would shut in about 100 MMcf/d in North America and doesn’t anticipate spending heavily on new natural gas drilling this year. Occidental Petroleum Corp. (Oxy) also intends to cut its gas output and defer onshore drilling because prices continue to be “horrible,” CEO Stephen Chazen said.

ConocoPhillips CFO Jeff Sheets and Clayton Reasor, vice president of corporate affairs, discussed the company’s performance in 4Q2011 and plans for this year during a conference call with energy analysts last week. While performance from its liquids and offshore properties in North America continues to be strong, the gas business is not faring as well, Sheets explained.

“Our gas volumes continue to decline,” he said in discussing North American asset performance. “I don’t think much capital will be allocated to new gas drilling” in 2012.

Last Monday Chesapeake Energy Corp., said it would shut in 0.5 Bcf/d, or 8% of its operated output (see related story).

North American natural gas production represented 26% of ConocoPhillips’ production last year. In the last quarter of 2011 it produced about 2.5 Bcf/d from U.S. and Canadian properties. Where the company can shut in gas, it will, Sheets said. However, the shut-ins would be done only in places where it managed the operations or partners also agreed to the shut ins.

“When you look across our portfolio, two-thirds of the [gas well] economics are really driven by liquids production and not natural gas prices,” said Sheets. “So, off the top, a portion of the portfolio would not make sense to shut in. Of the remaining Bcf/d, some we operate, some we don’t. We have partners in a lot of it and partners generally are not wanting to shut in gas and the associated cash with that. A portion of the production that we control we’ll make a decision on that and I think we will have some shut ins on natural gas going forward, on the order of 100 MMcf/d…We’ll continue to watch that as the year goes on and natural gas markets develop.”

Most of ConocoPhillips’ U.S. onshore gas production at the end of 2010 was from the San Juan Basin, where it produced 799 MMcf/d. However, because it has partners in the basin, the company could be constrained on shutting in output. In the Lobo formation, average output was 173 MMcf/d. The company operates and holds a 97% stake in the play. Another 123 MMcf/d was produced with various partners in the Permian Basin.

“We’ve got one rig running at Lobo; in the San Juan we’ve got four rigs running there,” said Reasor. “Of the 35-40 rigs operating in the Lower 48, less than five are pointing at gas…” In the 2012 capital budget, plans now are to allocate “a few hundred million dollars to the gas program,” said Sheets. “Even with that expenditure, pricing is something we are looking pretty closely at.”

ConocoPhillips also revealed that in the last three months of 2011 it acquired more than 100,000 acres in North American liquids-rich shale plays, bringing its unconventional acquisitions last year to more than 500,000 acres. The executives were reluctant to detail where the assets were “because we’re not finished buying,” said Reasor.

About two-thirds of the land acquisitions were in Canada’s Duvernay Shale. The other one-third of the purchases were in the Lower 48, including in the Avalon, Wolfcamp and Niobrara formations. “All of them target plays we believe are liquids-rich plays, not gas plays,” said Sheets.

“We’re making progress in growing our liquids-rich shale business,” said Sheets. The bulk of the spending and development is for the Eagle Ford and Bakken shales, the Permian Basin and the Cardium play in Canada. Production from Eagle Ford, Bakken and Barnett shale plays, as well as Canadian oilsands, averaged 153,000 boe/d in 4Q2011, which was 53,000 boe/d more than in the year-ago quarter.

“In the Eagle Ford we are running 16 rigs in the play and we expect to maintain a 16-rig-count average, which will drive around 180 wells this year,” Sheets said. The play was producing 50,000 boe/d in late December; by the end of 2012 output is expected to double. In the Permian Basin and the Bakken Shale, 10 rigs are operating, which could increase “by as much as 50% this year.”

ConocoPhillips continues to prepare for the spinoff its refining business, which would in turn create the largest pure-play independent in North America (see NGI, Oct. 31, 2011). Paperwork has been filed and the split could be completed by the end of May, said Sheets.

The company generated net profit of $3.4 billion ($2.56/share) in the final quarter of 2011, well ahead of the $2 billion ($1.39) earned in 4Q2010. Cash from operations totaled $5.8 billion, and it received $2.7 billion in proceeds from asset sales, which were used to fund a $4 billion capital program, repurchase $3.1 billion of common stock, pay $900 million in dividends and reduce debt by $500 million.

Los Angeles-based Oxy intends to stick with plans it announced last year to cut gas production until prices strengthen, Chazen said last Wednesday during a conference call (see related story).

“Domestically, we continue to have a substantial inventory of high-return projects to fulfill our growth objectives,” said Chazen, who also noted that low gas prices have caused some projects to be deferred this year. Oxy plans to increase its total capital expenditures in 2012 by about 10% to $8.3 billion, compared with $7.5 billion spent last year.

About $500 million of the added capital spending will be in the United States, mostly in the Permian Basin. Close to 41% of the total budget is split between California (21%) and the Permian (20%). Cutbacks will be made within the pure gas drilling program in the Midcontinent, South Texas and the Permian Basin.

“Current [domestic] natural gas prices clearly are not sustainable,” Chazen said. “I don’t think anyone is doing any pure gas drilling at prices around $2.50-$2.60 [per Mcf]. I think we have to wait for the U.S. economy to improve…The $2.50 prices for a rational person drilling strictly pure gas wells is not a sustainable price and its significantly below any rational replacement costs.”

Oxy can’t cut back on gas drilling that much since most of its reserves are associated with oil. “In order to [raise prices] you first have to have a reduction in gas drilling, improve the U.S. economy, and quite frankly the cost of drilling the wells have to come down,” said Chazen. He said it was unlikely the United States would see high gas prices anytime soon, “so we need to bring the cost of drilling gas well down to rational levels.”

Oxy’s net income for 4Q2011 was $1.6 billion ($2.01/share), compared with $1.2 billion ($1.49) for the same period in 2010. For the full-year 2011, profits were $6.8 billion ($8.32/share), compared with $4.5 billion ($5.56)/for 2010. In both cases oil and gas profits from the exploration business were far above the net income figures for comparative periods — nearly $1 billion and $3 billion more in the quarter and full-year periods, respectively. Domestic production increased 12% in 2011 and hit an all-time high in 4Q2011 of 449,000 boe/d. Total natural gas liquids output was 310,000 boe/d.

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