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ConocoPhillips’ Lower 48 ‘Big Three’ production flat in Q1 but will grow later in 2019

ConocoPhillips’ production from the Lower 48 “Big Three” unconventional plays –the Eagle Ford, Bakken and the Permian Basin –grew 30% year over year in the first quarter to 326,000 b/d of oil equivalent and will ramp up later this year, company executives said Tuesday.

That is in line with ConocoPhillips’ expectation of flat early 2019 production from “lumpiness” in the timing of bringing online multi-well pads across the different plays, Dominic Macklon, the company’s president, Lower 48, said.

“After outperforming in 2018 with 37% growth, we’ve said the trajectory of the Big Three would be relatively flat in the first half” of this year, Macklon said during the company’s Q1 earnings call.

Big Three production should grow 19% year on year to about 350,000 boe/d, he said.

A record number of wells were brought online late in the quarter, around the end of March, in the Eagle Ford Shale of South Texas and the Permian Basin in West Texas and New Mexico, Macklon said.

Most of ConocoPhillips’ Big Three production is located in the Eagle Ford. Although the breakdown by play for Q1 was not immediately disclosed, in Q4 the company produced 200,000 boe/d from that play, 101,000 boe/d from the Bakken in North Dakota and 34,000 boe/d in the Permian.

Q1 PRODUCTION GREW 8% YEAR ON YEAR

Total company production for Q1 averaged 1.318 million boe/d, up 8% from the same period last year and flat with Q4 2018, all excluding Libya.

The company does not have any significant takeaway capacity in the Permian Basin, which led it to focus more activity in the Eagle Ford last year as WTI Midland-WTI Gulf Coast differentials widened, ConocoPhillips Chief Financial Officer Don Wallette said. As a result, the company sells all its conventional and unconventional Permian oil into local markets.

But ConocoPhillips did participate in some of the open seasons for pipelines last year that are now under construction, and has options to expand its capacity rights on the lines, Wallette said.

“Over time, probably in Q3 or Q4 this year, we’ll start exporting Permian crude to the US Gulf Coast, and have options to expand our capacity rights on these pipelines,” he said.

It’s different for natural gas. ConocoPhillips produces about 100,000 Mcf/d in the Permian and has “a lot more” takeaway capacity than that from the basin through its gas marketing arrangement, Wallette said.

“In Q1 most of our gas was sold to Arizona and California markets, so we didn’t see Waha-type pricing,” he said. “On the gas marketing side, we did benefit a good bit from Waha pricing. Some producers were paying us as much as $6/Mcf or $7/Mcf.”

ConocoPhillips reported first-quarter 2019 earnings of $1.8 billion or $1.60/share, up more than 100% from the same period a year ago and about flat with Q4 2018.

Also Tuesday, ConocoPhillips CEO Ryan Lance sketched out his company’s forthcoming decade-long plan for consistent value creation through the commodity cycles and oil prices.
DECADE-LONG PLAN TO BE DETAILED IN NOVEMBER

Although a detailed plan will be formally released in November at the company’s Analyst/Investor meeting, Lance said it will be based on a capital budget of less than $7 billion/year and $50/b WTI.

ConocoPhillips can throw off free cash flow at less than $40/b WTI, generate absolute and per-share organic growth and return at least 30% of cash from operations each year to shareholders, he said. Capex for 2019 is set at $6.1 billion.

“We have a 16 billion-barrels-equivalent resource base that averages less than $30/b cost of supply,” Lance added. Last December, “WTI dipped into the low $40s/b and we didn’t miss a beat.”

In light of increasing merger and acquisition activity — notably Chevron’s $50 billion offer this month to acquire Anadarko Petroleum and Occidental Petroleum’s competing $57 billion bid last week — Lance virtually ruled out corporate M&A for his own company.

“We’ve always said the bar is very high for these transactions [that carry premiums], and that’s still the case,” he said. “When you put a premium on, it adds $10/b-$15/b cost of supply to all-in returns.”

M&A that ConocoPhillips prefers is less flamboyant — namely, adding to its working interest or royalty interest in a project, adding acreage in core areas, high-return bolt-on assets or acreage deals, Lance said.

“They could be larger in size [but they] make good sense,” he added.
Source: Platts

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