ConocoPhillips raises May oil output curtailments, still more due for June

ConocoPhillips will increase its near-term oil production cuts beyond the 225,000 b/d gross originally signaled two weeks ago, owing to persistent low crude demand and prices due to the coronavirus pandemic, the company said Thursday.

The company now intends to curtail 265,000 b/d of gross oil, starting in May, representing an additional 40,000 b/d of cuts from the Lower 48 states. The other 100,000 b/d, from the Surmont oil sands project in Canada, is unchanged from earlier this month, ConocoPhillips said in its first quarter earnings release.

But June's cuts will be even steeper, totaling 460,000 b/d and including 260,000 b/d in the Lower 48 states, 100,000 b/d from Surmont, still unchanged, and 100,000 b/d in Alaska, ConocoPhillips said.

"The next few months will be very bumpy for industry and for us," company CEO Ryan Lance said in a statement, referring to recent crude price volatility that is expected to continue plaguing oil producers.

"[Our] curtailment decisions are guided by the way we see market in the short-term," Lance said during the earnings conference call. "We just don't think it's right to accept [low] netback prices for the product we're producing."

OUTPUT CUTS THE LARGEST BY FAR IN SECTOR

ConocoPhillips' voluntary curtailments are so far the largest by volume made by a producer in response to the recent drop in prices.

RBC Capital Markets analyst Scott Hanold observed that ConocoPhillips' planned shut-ins represent about a third of the company's total production and over half its North American production.

To date, total US oil output curtailments total 960,000 b/d, mainly from the Lower 48 with some from the Gulf of Mexico and Alaska, according to S&P Global Platts Analytics. Another 940,000 b/d of cuts have been announced in Canada, and 1.47 million b/d outside North America, for a worldwide total of 3.4 million b/d.

NYMEX front-month crude futures settled at $18.84/b Thursday, up $3.78 in part on news of global output cuts.

Matt Fox, ConocoPhillips' chief operating officer, said the company is not risking damage to its production, reservoirs, wells or facilities while its production is shut-in.

While he did not say when production might resume - ConocoPhillips has suspended all guidance for the time being - it can return to pre-shutdown levels "within weeks," Fox said, adding there is no material cost to restart.

ConocoPhillips expects minimal risks in restarting wells in Alaska and expects production to be almost completely restored within weeks, Fox said. Alaska production will not be completely shut in so there will be a minimum flow of oil in wells to minimize risks of damage to the reservoir or producing wells.

"Actually, we do this kind of thing on a regular basis when we do major plant turnarounds on the slope, so we have confidence we can handle it," he said.

Future voluntary curtailment decisions will be made on a month-by-month basis, the company said. Lance also said he expects some additional curtailments to occur from constrained infrastructure, actions taken by assets operated by other producers or government mandates such as from OPEC+ country quotas.

The OPEC+ deal calls for the 23-country alliance to cut an unprecedented 9.7 million b/d of crude production over May and June, tapering down to 7.7 million b/d for the rest of 2020 and then 5.8 million b/d for all of 2021 through the first quarter of 2022.

A number of operators in producing US states -- notably Texas, Oklahoma and North Dakota -- are petitioning state energy regulators to prorate, or limit, overall output.

OUTPUT GROWTH FROM 'BIG 3'

ConocoPhillips' first-quarter 2020 oil and natural gas production, excluding Libya, averaged 1.278 million boe/d, down 40,000 boe/d from the same period a year ago, but up 52,000 boe/d when adjusted for closed and pending disposals.

The company's Q1 output growth primarily came from the company's "Big 3" US plays -- the Eagle Ford Shale in South Texas, the Bakken Shale in North Dakota and the Permian Basin in West Texas/New Mexico. Other growth came from development programs in Europe, Asia Pacific and the Lower 48 states.

ConocoPhillips' "Big 3" plays produced 399,000 boe/d in the first quarter, up 22% on the year, including 233,000 boe/d from the Eagle Ford, 96,000 boe/d from the Bakken Shale and 70,000 boe/d from the Permian Basin.

Production from Libya averaged 11,000 boe/d.

ConocoPhillips reported a Q1 2020 loss of $1.7 billion during the first quarter, or $1.60/share, compared with a profit of $1.8 billion, or $1.60/share, in the same quarter a year ago.

Excluding special items, Q1 2020 adjusted earnings were $500 million or 45 cents/share, compared with adjusted earnings of $1.1 billion, or $1/share in Q1 2019. Special items for the current quarter were mostly driven by an unrealized loss on Cenovus Energy equity and price-driven non-cash impairments.

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