Conoco to maintain $ 1.3B spending
Spending set for Surmont oilsands project and unconventional plays
ConocoPhillips Co. says it will slow expansion of its Surmont thermal oilsands project but maintain spending in Canada over the next three years at about $ 1.3 billion US per year by switching funds to revive unconventional drilling in Alberta and B. C.
The comments at an investor day meeting Wednesday in New York came three weeks after the Houston- based company said it would reduce Canadian staff by seven per cent or 200 employees, mainly at its country headquarters in Calgary.
It also said it would cut its overall capital spending over the three years to $ 11.5 billion US per year from $ 16 billion as it tries to grow production 10 per cent to 1.7 million barrels of oil equivalent per day while coping with low oil prices.
“We’ve got two vast resource positions in Canada, in the oilsands and the unconventionals,” said Matt Fox, executive vice- president of exploration and production, on a webcast from Wednesday’s event.
“To develop those resource positions, we’re going to spend about $ 1.3 billion per year in Canada ... in 2015, we have a significant amount of capital going into major projects, that’s Surmont 2 for the most part. But when we get to 2017, we see a significant increase in capital going to our unconventional programs. That results in a production increase in Canada of 80,000 barrels a day from last year to 2017.”
ConocoPhillips Canada applied last July for regulatory approval to add up to 125,000 bpd of capacity through its third steam- assisted gravity drainage project at Surmont, 60 kilometres southeast of Fort McMurray. The project would be built in three stages.
If approved, total regulated capacity would jump to 260,900 bpd. Phase One is producing about 30,000 bpd and Phase Two, expected to begin steaming wells in mid- 2015, will gradually ramp up from first production late this year to take the total capacity to about 136,000 bpd. Surmont is 50- percent owned by France’s Total SA.
“In the current price environment, we’ve decided to slow the pace of new developments at Surmont and instead ... we’re focusing on optimizing our production through existing facilities,” Fox said on the webcast, adding the company expects Surmont 2 to repeat Phase One’s ability to produce more than nameplate capacity thanks to incremental investment and de- bottlenecking measures.
ConocoPhillips Canada spokeswoman Jennifer Werbicki said Phase Three hasn’t been sanctioned and will have to compete with other projects for capital.
“We are evaluating opportunities to optimize and expand the production from Surmont, including the potential addition of steam generation capacity. No final scope has been selected,” she said in an email.
Fox said ConocoPhillips has 25 years of inventory from established and early- stage unconventional drilling plays to choose from in its 1.2 million hectares of land in Western Canada, including Glauconite, Cardium, Montney and Duvernay formations, and it can expect to good returns from them.
“We ramp that up between 2015 and 2017 but it’s not quite enough to offset declines,” he said, noting oilsands will add 100,000 bpd to make up for those production declines. ConocoPhillips also has a 50- per- cent stake in the Foster Creek, Christina Lake and Narrows Lake oilsands assets operated by Calgary- based partner Cenovus Energy Inc.
The company said its operating costs are falling in both oilsands and unconventional drilling.
Brian Youngberg, an analyst at Edward Jones in St. Louis, Mo., told Bloomberg that’s accurate.
“ConocoPhillips has created a niche as a major independent producer with an attractive dividend and stable returns that trades more like” larger oil companies such as Exxon Mobil, Youngberg said. Investors want to see the producer shore up its finances and spend in line with cash flow, he said.
ConocoPhillips Canada blamed the “challenging economic environment” for the recent layoffs from its Canadian workforce of 2,800 people, which followed similar cuts at Talisman, Nexen and Suncor.