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ConocoPhillips reports strong 2Q, L48 major investment competitor
Kay Cashman Petroleum News
When ConocoPhillips acquired shale player Concho Resources earlier this year for a nifty $9.7 billion, it gained more investment opportunities in Lower 48 unconventional plays. Unsurprisingly, the region is becoming an even bigger competitor for Alaska for investment capital within the company.
In ConocoPhillips’ second quarter conference call on Aug. 3, Tim Leach said the company has “invested about $1.5 billion in the first half of the year” in the Lower 48 and it will spend the same amount in the second half of this year for a total of $3 billion - that investment in primarily in the Permian, Eagle Ford and Bakken basins.
Leach had been Concho’s chairman and CEO. When the sale closed, he joined ConocoPhillips’ board of directors and became an executive vice president and president of ConocoPhillips’ Lower 48 business.
“My excitement about the performance of the Lower 48 couldn’t be higher. When you take the different levels of technology that we’re applying to a broader set of really, really good assets, my expectation is that the efficiencies we’re getting out of our business, the performance of our business will just continue. So, it’s a real driver of cash flow and value creation,” Leach said.
How does $1.5 billion in the Lower 48 compare to ConocoPhillips’ investment in Alaska in the first half of the year and its plans for the second half?
“Capital spend in Alaska was around $460 million in the first half of 2021,” Rebecca Boys, ConocoPhillips Alaska’s media director, told Petroleum News Aug. 3. “We expect the second half of the year to be slightly higher due to the planned resumption of our development programs,” she said, including as examples drilling on the North Slope and GMT-2 (where drilling began in second quarter), which “is in its third and final construction season.”
In the Aug. 1 issue PN reported that ConocoPhillips Alaska will restart drilling at the Kuparuk River unit with a workover rig in the third quarter, followed by a coiled tubing rig in the fourth quarter and rotary rig drilling in the second quarter of 2022.
PN also previously reported that the first Fiord West well was spud in second quarter. It will test more than 45 million BOEs of resource from the existing CD-2 pad and be tied back to infrastructure with first oil scheduled later this year.
L48 earnings high Various reports have shown the cost of doing business for ConocoPhillips in the Lower 48 since it absorbed Concho has been less expensive than in Alaska - and as CEO and Chairman Ryan Lance and his fellow executives made clear in the Aug. 3 conference call, the company continues to realize synergies and efficiencies in its Lower 48 business.
Adjusted earnings in second quarter for ConocoPhillips’ Lower 48 business were $1.2 billion, whereas in Alaska they were $373 million.
In its own second quarter earnings review released Aug. 3, ConocoPhillips Alaska said it incurred an estimated $279 million in taxes and royalties due to the State of Alaska and $76 million in estimated taxes and royalties due to the federal government.
Additionally, the company invested $228 million in capital in Alaska in second quarter.
Year to date, ConocoPhillips Alaska said it has incurred an estimated $506 million in the form of taxes and royalties to the state, $105 million estimated federal taxes and royalties, and has invested $463 million in capital in the state.
Getting back to work “After working through last year’s market volatility and the pandemic, the theme for us this year has been Getting Back to Work,” said Erec Isaacson, president, ConocoPhillips Alaska, “and we are full speed ahead.”
“Alaskans are back to work on the North Slope,” he continued, “and ConocoPhillips is investing in Alaska’s future. The state’s economy is no doubt still on shaky ground, but we are fully engaged in multiple large-scale projects, like our planned Willow field, and the long-term engineering, construction, and maintenance they require are crucial to that recovery.”
Isaacson’s call to action: “The state needs now, more than ever, a predictable and stable fiscal regime in order to stay competitive in the global market.”
Since 2007, ConocoPhillips Alaska said it has paid more than $39 billion in taxes and royalties to the State of Alaska and the federal government. Of that amount, about $30 billion went directly to the state. In that same period, ConocoPhillips Alaska’s earnings have been approximately $21 billion.
Production numbers ConocoPhillips Alaska’s North Slope production averaged 184,000 barrels of oil equivalent per day during second quarter, while Lower 48 output averaged 794,000 BOE, including 435,000 from the Permian, 227,000 from the Eagle Ford and 95,000 from the Bakken.
At a market update on June 30, Nick Olds, senior vice president of global operations, including Alaska, said the North Slope GMT2 development is projected to yield about 30,000 barrels of oil equivalent per day, which he said will restore ConocoPhillips Alaska output to what it was about 10 years ago.
“Over the next 10 years the Alaska fields are expected to deliver about 800 million BOEs of production.”
He said ConocoPhillips expects its Alaska development programs will more than offset its base decline of more than 4%, which is a 2% improvement from the company’s 2019 10-year plan. It allows ConocoPhillips to maintain production at more than 200 million BOE per day in Alaska.
The company produced 223,000 BOE per day from Alaska 10 years ago in second quarter 2011. By comparison, ConocoPhillips produced some 160,000 barrels of liquids in the Lower 48 during the second quarter of 2011, as compared to 794,000 BOE in second quarter of this year.
Company-wide production excluding Libya for the second quarter of 2021 was 1,547,000 BOE per day.
After adjusting for closed acquisitions and dispositions as well as impacts from the 2020 curtailment program, second quarter 2021 production increased 46,000 or 3% from the same period a year ago, primarily due to new production from the Lower 48 and other development programs across the portfolio.
Company-wide results ConocoPhillips delivered strong second quarter financial and operational results with reported earnings of $2.1 billion and adjusted earnings of $1.7 billion, as compared to a second-quarter 2020 adjusted loss of $1 billion.
In the Q&A session on Aug. 3, company executives received pressure from analysts as to why they weren’t pledging to give back more than their usual promised 30% of cash flow from operations, or CFO, to shareholders; especially with more than $9 billion cash on the balance sheet.
Lance pointed out that even during downturns in oil prices, the company consistently paid out 30%, and that the average payout has been 40% of CFO.
“But today, we feel like our shares are a great buy in the market. So, the channel that we’ve chosen right now … is to the strong ordinary dividend,” he said.
- KAY CASHMAN
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