Houston-based ConocoPhillips reported higher earnings in 2Q2021 as it benefited from higher commodity prices and production driven by its recent acquisition of Permian Basin pure-play Concho Resources Inc.

ConocoPhillips

Excluding output from its Libya operations, the super independent reported 2Q2021 output of 1.55 million boe/d, a 566,000 boe/d increase over the same period of 2020. The figure was also higher than the 1.5-1.54 million boe/d ConocoPhillips had previously predicted.

“This increase was primarily due to new production from the Lower 48 and other development programs across the portfolio, partially offset by normal field decline,” management said.

In the Lower 48, production averaged 794,000 boe/d compared to 311,000 boe/d in the same period a year ago. The latest figures included 435,000 boe/d from the Permian. ConocoPhillips recently became one of the basin’s biggest producers on the heels of its acquisition of Concho, which closed in 1Q2021.

The company also reported 227,000 boe/d from the Eagle Ford Shale of South Texas and 95,000 boe/d from its Bakken Shale assets in North Dakota for 2Q2021.

Drilling Activity

During the 2Q2021 earnings call on Tuesday, Executive Vice President Tim Leach said ConocoPhillips had invested about $1.5 billion in the Lower 48 in the first half of the year and expects that rate to stay steady through the end of 2021.

ConocoPhillips is currently running 15 rigs in the Lower 48, with 11 in the Permian and four in the Eagle Ford. On the hydraulic fracturing side, there are seven active crews in the Permian and three in the Eagle Ford. 

“We expect those levels of activity to remain pretty constant throughout the rest of the year,” Leach said. 

Lower 48 drilling activity overall has grown over the past months as commodity prices have strengthened. A large portion of activity is being pursued by private operators, but ConocoPhillips CEO Ryan Lance said during the call that large public companies would continue to dominate production in the region long term.

“The private side, they are representing about 45% or so of the rigs that are running in the title plays in the Lower 48 today,” Lance said. “But they only account for about 22% of the current production…

“I think generally as we think about going forward, they run out of some of their best acreage over the next couple of years. So we don’t see them having an outsized impact on the growth coming from the title and in the end being a dominant driver of U.S. production growth.”  

Looking ahead to the third quarter, the company expects to produce 1.48-1.52 million boe/d, “reflecting seasonal turnarounds planned in Alaska and the Asia Pacific region.” 

Elsewhere, ConocoPhillips drilled ahead at its Greater Moose’s Tooth development and spud the first Fiord West well from the CD2 pad, both in Alaska. The company also said the Tor II project offshore Norway had wrapped up, with the remaining three wells of the eight-well campaign brought online. Production from Libya totaled 41,000 boe/d.

‘Patience’ For M&A

ConocoPhillips plans to divest up to $3 billion in assets over the next 18 months, and has banked $200 million from sales so far. Lance said the company is constantly screening opportunities to both buy and sell assets. However, he also said patience was key to the company’s thinking around the deal market.

“We have a pretty rigorous discipline kind of framework for how we think about acquisitions,” he said. “We know the assets in the areas that we really like, and you shouldn’t be surprised if we’re looking at opportunities that are consistent with that framework and contiguous to where we operate. But you know, they have to compete within our cost of supply framework and the discipline that we’ve brought to that, and the patience that we’ve done, both on the buying and the selling side.”

Lance also said the multi-basin portfolio gives it an advantage when grappling with inflation, which operators have seen rising in the Lower 48.

“I think if you’re a pure-play, one-basin kind of operator, you’re probably going to experience certain categories of spend that are inflating,” he said. “Others around the world are not inflating, maybe some of the economies that are leading the recovery from the Covid pandemic. So I think we’re able to differentiate ourselves in that regard pretty clearly, we think it’s imminently manageable this year and as we go into next year.”

Senior Vice President Dominic Macklon said ConocoPhillips is seeing some inflation in prices for tubulars and cement, and noted pressure on Lower 48 fracture crews. He said the company still has “wind in its sails” on supply chain savings and operational efficiencies resulting from the Concho acquisition.

“Being a global company really helps because we’re still seeing deflation in certain categories and internationally,” he added.

On the financial side, ConocoPhillips saw a huge improvement in commodity prices compared with last year, when the pandemic took its toll on the markets.

The company reported an average realized price of $50.03/boe, a 117% improvement over 2Q2020. On average, it realized an average $65.51/bbl for crude oil, compared with $25.10 in 2Q2020. Natural gas liquids averaged $26.87/bbl compared with $9.88 last year, while natural gas prices rose to $4.16/Mcf from $3.22 in 2Q2020.

ConocoPhillips reported net earnings of $2.1 billion ($1.55/share) in 2Q2021, compared with $300 million (24 cents) in the year-ago quarter. 

Earnings from the Lower 48 segment reversed to profits in 2Q2021 of $1.19 billion from a loss of $405 million a year ago. Alaska financials also improved, swinging from a $222 million loss in 2Q2020 to earnings of $373 million in 2Q2021. The Canada segment went from a $163 million loss to $50 million in earnings year/year.