NOTEBOOK
ConocoPhillips walks line on restraint and flexibility
Several U.S. oil producers have recently signaled plans to curtail spending on drilling next year, caving to shareholder pressure to emphasize returns instead of rapid growth.
But ConocoPhillips, the first to detail specific plans for 2018, touted both financial restraint and flexibility this past week, saying it expects to increase shareholder returns, spend more money and pump more oil — a balancing act only possible after cutting costs over the past year.
The Houston oil company claimed the cost of extracting a barrel of crude from U.S. shale plays, and all associated costs of getting that oil to market, will come in about $35 a barrel.
Among U.S. shale drillers, ConocoPhillips will have the lowest cost to sustain oil production next year, according to energy research firm Wood Mackenzie.
ConocoPhillips said it could keep its crude production flat with an investment of $3.5 billion. But as long as crude prices hover above $50 a barrel, it will spend $5.5 billion annually through the end of the decade — $1 billion more than this year, executives told investors on Thursday.
Over the next three years, ConocoPhillips expects to almost double its daily oil output in its three biggest U.S. shale plays, the Eagle Ford Shale and Delaware Basin, both in Texas, and the Bakken Shale in North Dakota, from a daily 220,000 barrels to 400,000.
But for all of that growth, ConocoPhillips also aims to return up to 30 percent of the cash it makes from selling oil and gas to shareholders, and repurchase $1.5 billion in shares annually through 2020.
“We want to be the company that can attract investors to a sector that has underperformed for far too long,” ConocoPhillips CEO Ryan Lance said last week.
Last year, he said, oil production growth was all the rage on Wall Street, and ConocoPhillips took some fire for cutting spending more than once this year. But it appears, he added, that investors have come around. The company’s stock has outperformed most of its peers this year.
“We know the low-cost producer wins in this business,” Lance said.
The company said it holds resources of some 1.9 billion barrels of oil equivalent across 75,000 net acres in the Delaware Basin, with 1,400 spots to drill left. It plans to lift output there from 20,000 barrels a day to 85,000 barrels a day by 2020. In the Eagle Ford, it expects to boost production from 130,000 barrels a day to 245,000 over the same period.
ConocoPhillips, with plans to increase spending, production and returns, is playing to two groups of investors — those that want to see the company’s production growth surge and those that want higher returns.
Most other Houston-area oil companies have not yet disclosed their 2018 plans to investors. But several, including Anadarko Petroleum Corp., EOG Resources, Marathon Oil Corp. and Noble Energy, have signaled they’ll emphasize restraint next year — even if oil prices rise. But recent events may test those plans.
The arrests of Saudi royals and top officials, orchestrated by Crown Prince Mohammed bin Salman this month, pushed oil prices to the highest levels in two years. Analysts have said they’re skeptical oil companies will hold back if prices keep rising. But for now, it appears hundreds of oil field services companies and tens of thousands of their workers will have to wait to see whether their customers pull back on spending, or whether, as usual, the shale drillers charge full speed ahead.
“We know the low-cost producer wins in this business.” Ryan Lance, ConocoPhillips CEO