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Vol. 23, No.31 Week of August 05, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Conoco earnings up

2nd quarter adjusted earnings $1.3B, $418M from Alaska, 32% of total

Kristen Nelson

Petroleum News

ConocoPhillips reported $1.3 billion in second-quarter adjusted earnings on July 26, compared to second-quarter 2017 adjusted earnings of $178 million, the company said July 26 in reporting results for the quarter.

For Alaska, the figures are adjusted net income of $418 million, compared to $167 million in the 2017 second quarter.

The company attributed the higher year-over-year second-quarter adjusted earnings primarily to higher realized prices, with a total realized price of $54.32 per barrel of oil equivalent in the second-quarter of this year, compared to $36.08 in the second quarter of 2017, crediting both stronger prices “and a more liquids-weighted portfolio.”

“We’ve positioned ConocoPhillips to deliver top-tier performance through cycles by focusing on free cash flow generation and following clear priorities to maximize returns,” said Ryan Lance, chairman and chief executive officer. “We’re benefitting from higher oil prices, but also driving underlying cash flow expansion,” he said.

The company’s estimated obligations to the state of Alaska in the form of taxes and royalties totaled $291 million in the second quarter, ConocoPhillips Alaska spokeswoman Natalie Lowman told Petroleum News in an email.

She said that in the second quarter the company invested $581 million in Alaska, bringing the company’s year-to-date total to $844 million.

“That capital spend of $581 million represents about 29 percent of the total $2 billion capital spend for ConocoPhillips overall,” Lowman said.

Second quarter production in Alaska was 185,000 barrels of oil equivalent a day, almost flat compared to the 2017 second quarter, she said.

Second quarter

Excluding Libya, ConocoPhillips’ production for the second quarter was 1.211 million boe per day, a decrease of 214,000 from a year ago. The company said the volume impact from closed dispositions in 2017 was 272,000 boe per day.

“Excluding the impact of closed dispositions, underlying production increased” 58,000 boe per day, or 5 percent, ConocoPhillips said, with the increase primarily from its “Big 3” Lower 48 unconventional assets - Eagle Ford, the Bakken and the Delaware (part of the Permian) basin - and other major projects, “which more than offset normal field decline.”

Production from the company’s Lower 48 unconventional assets grew 37 percent year-over-year.

For the first six months of the year, production, excluding Libya, was 1.216 million boe per day, compared with 1.503 million for the same period in 2017, with an impact of 337,000 boe per day from six months of closed dispositions. Excluding that impact, underlying production increased 50,000 boe per day, 4 percent. “The increase was largely driven by new production from major projects, development programs and improved well performance, more than offsetting normal field decline,” the company said.

Full year production guidance has been increased to a range of 1.225 million to 1.255 million boe per day, reflecting “the higher-than-budgeted partner-operated activity, improved performance across several operating areas and completion of the Alaska Western North Slope bolt-on acquisition,” ConocoPhillips said, with third-quarter production expected to be 1.215 million to 1.255 million boe per day, reflecting typical seasonal turnarounds and maintenance activity. The company said all production guidance excludes Libya.

Alaska

“In Alaska, GMT-1 drilling continued, and the project is on track to deliver first oil in the fourth quarter of 2018,” ConocoPhillips said.

ConocoPhillips closed on its previously announced Alaska bolt-on acquisition on the Western North Slope in the quarter - the acquisition from Anadarko Petroleum of that company’s share of Alpine and Western North Slope acreage, including Greater Mooses Tooth and Willow - and announced that it has agreed to acquire a 39.2 percent interest in the Greater Kuparuk Area from BP, while selling BP a subsidiary that will hold a 16.5 percent interest in the UK Clair field. That exchange is subject to regulatory approval.

Also in the quarter the company announced positive results from its 2018 six-well exploration and appraisal drilling program in Alaska.

Al Hirshberg, ConocoPhillips executive vice president, Production, Drilling & Projects, told analysts July 26 that second quarter production, excluding Libya, averaged 1.211 million boe per day, just above the high end of second-quarter guidance, driven primarily by outperformance in Eagle Ford and Bakken, but also reflecting an additional 5,000 barrels per day from the company’s Western North Slope acquisition.

Lower 48

Hirshberg said the company’s Big 3 Lower 48 unconventionals averaged 292,000 boe per day in the second quarter, 37 percent growth year-over-year. (Alaska averaged 185,000 boe per day, basically flat year-over-year). Eagle Ford averaged 182,000, Bakken 82,000 and the Delaware 28,000.

He said the company has adjusted its 2018 operating plan to reflect higher production and higher prices, compared to the company’s reference price of $50 West Texas Intermediate when 2018 budgets were planned. An increase of roughly 10 percent in capital for 2018, to $6 billion, is driven by three factors, all Lower 48 - increased partner-operated activity, increased operated asset efficiency resulting in more completions with the same number of rigs and inflation. Hirshberg said ConocoPhillips is moving one unconventional Delaware rig to the Eagle Ford and laying down the company’s one conventional rig in the Permian. He said the company’s original plan for unconventional drilling called for six rigs in the Eagle Ford, three in the Delaware and two in the Bakken, so the total in the company’s unconventional areas remains 11.

Alaska future

Hirshberg said no production from the purchase of BP’s interest in Greater Kuparuk was included in the 2018 numbers, since that deal is awaiting regulatory approval. Those volumes, for a full year, would be about plus 30,000 barrels, he said.

The West North Slope position purchased from Anadarko has closed, he said, with regulatory approval in May, so those volumes are included in year-end numbers, about 7,000 barrels.

Discussing inflation pressure, Hirshberg said the steel tariffs in the U.S. are turning out to be a fairly significant item for ConocoPhillips, since the company spends, in the Lower 48 and Alaska, some $300 million a year on steel, including pipes, valves and fittings.

He said hot-rolled steel prices in the U.S. are up some 26 percent since the first of the year, although ConocoPhillips has been somewhat isolated from that increase by its supply chain position - but he said that cost would continue to grow next year.

On capex, Hirshberg said they anticipated a final investment decision on Willow in 2021, and that’s when significant spending would start on that development.

As for acquisitions, Hirshberg said the Western North Slope and Kuparuk were “very special opportunities” where ConocoPhillips had partners who viewed values differently than ConocoPhillips.

He said if more deals like those two present themselves, the company would take them, but he said the company’s experience has been that those deals are few and far between.



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