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Oil Patch insider: Lance bullish on oil market; Alaska ‘very, very competitive’
Kay Cashman Petroleum News
While ConocoPhillips’s Ryan Lance is “bullish” on the oil market for the “next couple of years” and “very excited” about the company’s $9.5 billion cash purchase of Royal Dutch Shell’s assets in the Permian, “one of the best basins in the world,” what does this mean for Alaska’s North Slope?
Having Willow at a virtual standstill with the recent federal court decision and having blown most of its available cash on the Sept. 20 Shell deal, will ConocoPhillips’ overall spending in Alaska be reduced in 2021?
Meredith Kenny in ConocoPhillips Alaska’s communications office did not directly address an impact from the Shell acquisition but she did address the Willow court decision in a Sept 22 statement to Petroleum News: “The Willow decision on August 18 has no direct impact on the remainder of the company’s core business in Alaska. YTD 2021 (through June) our capital expenditure has been $463MM - our budget remains on track for the year.”
On track would be “slightly higher than the first half the year,” which Rebecca Boys, ConocoPhillips Alaska’s media director, told Petroleum News Aug. 3. Except for front-end engineering and design which are ongoing, Willow was not a large part of that amount.
Lance was questioned in a Sept. 21 Bloomberg interview as to why the extra $9.5 billion in cash wasn’t being paid out to shareholders. Will that slight resistance translate into stronger shareholder resistance should Lance make an offer on Pikka/Horseshoe when the Santos takeover of Oil Search is final, expected to be at the end of the year?
More importantly, how committed is the company to Alaska?
Here is what Lance told Bloomberg and what was said in ConocoPhillips’ Sept. 21 market update and announcement of the Shell deal:
Phil Gresh, JPMorgan Chase & Co’s Research Division, senior equity research analyst, asked: “I know your plan has not changed as a result of this transaction. But I’m curious if it makes you think differently at all about projects like Willow, which would obviously still have a lot of upfront capital and has regulatory uncertainty. Does that become a bit more of a back burner option now that you have the Shell acquisition to integrate?”
Lance, ConocoPhillips’ chairman and CEO, responded: “No, it doesn’t change our perspective at all about Willow,” he said, turning to Nick Olds, ConocoPhillips, executive VP of global operations, to provide a Willow update.
“As we laid out in June 30 in the market update, Willow remains very competitive in the portfolio, even with the Shell assets,” Olds said. “We’re continuing the front-end engineering, engineering design work in service of FID (final investment decision). Currently, we won’t FID the project based on the Alaska District Court litigation.”
Olds added: “We’re working closely, Phil, with the BLM and just working through the cited key attributes with the BLM. We’ll keep you posted. But Willow clearly remains competitive in the portfolio.”
Lance added: “And arguably, (Willow) probably has moved a little bit to the right given the litigation, but we’re still focused on moving the project forward when we have the ability to go do that.”
Help fund legacy fields Unconventional tight oil production generates steady cash flow that Lance said ConocoPhillips can use to fund legacy conventional assets with comparatively low capital needs in places such as Alaska, Norway and Qatar.
The legacy assets in turn yield long-term, steady output that offset the steep production decline rates in the unconventional plays.
“We run them as a free cash flow machine,” Lance said. “So, we’re running them in a different fashion for modest growth - focus on returns of capital on capital - and this (Shell) transaction makes that even better for the company going forward.”
ConocoPhillips’ acquisition of Shell’s Permian assets makes it the basin’s No. 2 producer. Pioneer Natural Resources is the top Permian producer.
Judge asked a ‘few questions’ In the Bloomberg Markets interview on Sept. 21, questions arose about the company’s commitment to Alaska, including “is the deal in the Permian against what you guys are doing in Alaska?”
“No, we strongly believe in a global diversified portfolio,” Lance said. “It’s one of the strengths of our company. … It lowers the capital intensity by having these large legacy places, like Alaska, Norway and Canada, the Far East, Qatar. Those things just add to the capability of the company, they lower the decline rate of the company. … We strongly believe in maintaining global diversity, but we’ve got to make sure it’s low cost of supply where we’re at. And the things we are doing up in Alaska compete favorably in the portfolio.”
When asked about his level of confidence in getting to do what he wants to do in Alaska, Lance replied: “We expect to do what we want to do in Alaska. … We do it right in Alaska and it’s really important to the state. All our stakeholders are supportive and behind what we’re doing. A federal judge on the Willow project asked a few questions. There’s remedies, there’s solutions to those and we’re working through those. And we expect to work through those in a way that will satisfy any questions the judge has - and make a more robust permitting process that we’ve already been through on the projects we’re developing up there.”
Lance called attention to GMT-2, a project ConocoPhillips “has coming online at the end of this year in Alaska. We’ve reinstituted a number of rigs that are drilling up there, and we’re still operating and investing capital up there.”
Alaska “is very, very competitive” in ConocoPhillips portfolio, Lance said.
- KAY CASHMAN
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