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ConocoPhillips raises capital budget 17% for 2021, maintains production outlook


Over half of $5.5 billion capex allotted to Lower 48

'Makes no sense' to grow output in current market: CEO

Permian output, pre-Concho add, up 26% year on year

  • Author
  • Starr Spencer
  • Editor
  • Richard Rubin
  • Commodity
  • Natural Gas Oil

Houston — Fresh from closing a major corporate acquisition, ConocoPhillips has set a 2021 capital budget of $5.5 billion, 17% higher than last year, that will maintain its production flat at 1.5 million boe/d pro forma, the company's top executives said Feb. 2.

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More than half, or 55%, of its $5.5 billion capex this year is allocated for the Lower 48, with the rest spread across our a set of diverse global assets that include Alaska, Canada, Europe, North Africa, Asia-Pacific and the Middle East, ConocoPhillips CEO Ryan Lance said during the company's fourth-quarter earnings call.

"We set the budget [at that level] for two principal reasons," Lance said. "While the macro environment has firmed up recently, we are cautious about the trajectory and timing of a recovery. Demand has firmed up but ... recovery is taking longer, spare supply remains and inventories remain elevated."

"It makes no sense to grow into this market environment, so we're choosing to stay at a sustaining level for the year," he said.

ConocoPhillips, which closed its $9.7 billion purchase of Concho Resources last month, produced 1.144 million in Q4 2020 excluding Libya, down 11% from the same period the year before in absolute numbers and down 7% after adjusting for closed sales and acquisitions.

Concho adds production in 2021

The Q4 production figures don't include Concho, which adds about 320,000 boe/d of oil and gas production starting this year and provides ConocoPhillips with a bigger Permian Basin footprint.

Lower Q4 production came from normal field declines although it was partly offset by production increases from the Lower 48 and elsewhere.

The company's Q4 Permian production averaged 88,000 boe/d, up 26% compared to 70,000 boe/d in the same year-ago quarter. Also, its Eagle Ford Shale production in South Texas averaged 183,000 boe/d versus 221,000 boe/d a year ago, and in the Bakken Shale of North Dakota and Montana, 94,000 boe/d, about flat with 96,000 boe/d in Q4 2019.

Oil production in Q4 2021 totaled 595,000 b/d, down 14% from the same year-before period, while natural gas production totaled 2.394 Bcf/d worldwide, down 13% .

ConocoPhillips' 2021 capital budget compares to $4.7 billion actually spent last year.

At a time when every dollar is expected to earn its keep, Lance noted that the company's new ventures exploration group, which includes leases in Colombia, Chile Argentina and exploration leases in Australia, is only funded this year at $300 million – half its 2020 level.

"South America and other places around the world may not compete in the portfolio," he said. "So we'll be looking to monetize those and potentially get out of them."

Lance, like other CEOs so far this earnings season, also weighed in on the recent 60-day moratorium on domestic leasing and new permits imposed by the Joe Biden presidential administration, with similar comments. He said the move would negatively affect the US economy recovery from the coronavirus pandemic and also will force reliance on foreign oil barrels that emit more greenhouse gas.

But Lance also took a measured view of the Administration's actions, cautioning against leaping to conclusions and noting uncertainty in fiscal terms and permitting is true of governments around the world.

'Loosening up' approvals

"We're starting to see, frankly, a bit of loosening up, some permits getting approved that they said even during this moratorium wouldn't get approved," he said of Biden's energy officials. "We take them at their word that this is temporary and that we'll get back to business as usual or at least something close to it after these 60 days."

"So I wouldn't get hung up," Lance added.

Lance also said ConocoPhillips has the flexibility, diversity and abundant low cost of supply resource base to "manage through" the Administration's action without materially affecting its plans.

Tim Leach, former Concho CEO and now ConocoPhillips' executive vice president-Lower 48, noted the company has "several decades" of non-federal high-quality drilling locations in its portfolio.

While primarily an oil producer, Lance said that ConocoPhillips "likes" LNG projects and also the Asian market. It has a stake in the Australia Pacific LNG project and the Qatargas 3 joint venture and last year sold its share of the Darwin LNG project.

Noting that the company's investment threshold is a less than $40/b cost of supply and its actual cost averages below $30/b, Lance said the Darwin LNG sale came was prompted by ConocoPhillips "concern" about its cost of supply and greenhouse gas footprint.

But, "we like the growing need for gas around the world [and] we are interested in competing in Qatar for another train," he said. "That opportunity should be coming soon."