With domestic natural gas prices still below $3 per thousand cubic feet, unconventional oil is playing an increasingly important role in the ConocoPhillips portfolio.
ConocoPhillips produced 102,000 barrels of oil equivalent from the Bakken and Eagle Ford plays during the third quarter, double what it produced from the two plays during the same period last year, the company said during a quarterly earnings call on Oct. 25.
The growth of unconventional oil is steadily pushing ConocoPhillips’ domestic production profile toward liquids. Quarterly liquids production increased 21 percent year over year, while natural gas production declined 3 percent over the same time period.
As a result, liquids now constitute 46 percent of ConocoPhillips’ domestic production, up from 40 percent last year at this time. “We expect this liquids percentage to continue to grow and drive our margin expansion over time,” ConocoPhillips CFO Jeff Sheets said.
Even so, oil only stemmed the decline in earnings. ConocoPhillips does not break out earnings by area, but across its entire Lower 48 segment the company earned $145 million during the third quarter, up from $104 million in the second quarter but down more than half from the $300 million the company earned in the third quarter of 2011.
That’s because while domestic oil prices remained roughly steady at about $90 per barrel year over year, natural gas prices fell to $2.64 per thousand cubic feet from $4.15 a year ago and natural gas liquids prices fell to $31.40 per barrel from $52.25 a year ago.
ConocoPhillips produced 462,000 boe per day from its Lower 48 operations in the quarter, up from 441,000 boe per day in the second quarter and up from 434,000 boe per day in the third quarter of 2011. For oil, the company produced 124,000 bpd in the quarter, up from 115,000 bpd in the second quarter and 95,000 bpd year over year.
Bakken and Eagle Ford
In the Bakken, ConocoPhillips produced 29,000 barrels of oil equivalent per day in the third quarter and exited the quarter producing 26,000 boe per day from the play.
ConocoPhillips’ Bakken production is 88 percent liquids.
With incremental takeaway capacity from new rail facilities allowing the company to add rigs on its more than 620,000 net acres in the region, ConocoPhillips expects the production increases to continue through the fourth quarter and into 2013, Sheets said.
The Eagle Ford continues to lead the ConocoPhillips unconventional portfolio.
ConocoPhillips produced 76,000 barrels of oil equivalent per day from the south Texas shale play during the third quarter, peaking at 86,000 boe per day. The company anticipates hitting the 100,000 boe per day milestone from the play in the fourth quarter.
ConocoPhillips’ Eagle Ford production is 79 percent liquids.
ConocoPhillips said it is currently adding infrastructure in the region to maximize sales and, at its current rate, expects it leasehold to be held by production by mid-2013. The company is currently running 14 rigs on its roughly 230,000 net acres in the Eagle Ford.
In addition to the Bakken and Eagle Ford, ConocoPhillips said it has “significant” exploration under way in other domestic unconventional oil plays, including the Wolfcamp play and Avalon shale of west Texas, the Lewis shale of Wyoming, the Niobrara formation of Colorado and Wyoming, and the Mancos in the San Juan basin.
“We expect to have results for discussing these plays by early next year,” Sheets told analysts. “And I should note that these are just a few of the opportunities we’re evaluating in our vast Lower 48 land possession. And we continue to identify other potential plays where we can acquire unconventional acreage at low entry prices.”
