ConocoPhillips was locked and loaded as the company ended its first full year as an independent producer, achieving many early goals including establishing North Dakota’s Bakken, Texas’ Eagle Ford and other unconventional plays as a cornerstone to help lift company production by 3-5 percent in 2014 and beyond.
For the full year 2013, Bakken and Eagle Ford production rocketed 60 percent on a combined basis compared to 2012, by far greater than any other play development, in spite of bad weather across the Lower 48.
“Operationally, we hit the milestones we set for ourselves in 2013, and we have positioned the company for growth,” Ryan Lance, ConocoPhillips’ chairman and chief executive officer, told analysts in a Jan. 30 conference call.
Bakken hits 43,000 boepd in Q4
Bakken alone averaged 39,000 barrels of oil equivalent per day in the fourth quarter of the 2013, a whopping 63 percent increase over the same period in 2012. That compares to 34,000 boe per day in the third quarter, up 13 percent from the second quarter and 31 from the third quarter of 2012. Daily output in the 2013 fourth quarter peaked at 43,000 boe, the company reported.
In the Eagle Ford, where natural gas makes up a larger portion of production than the Bakken, output averaged 126,000 boe per day in the fourth quarter, representing 42 percent growth versus the same period in the previous year. Production reached a peak daily rate of 141,000 boe in late December, the company noted.
When adding ConocoPhillips’ Permian production to the company’s Bakken-Eagle Ford mix, 2013 fourth-quarter output from these areas was up a combined 31 percent compared to the fourth quarter of 2012.
More reserves to book
ConocoPhillips has booked less than 30 percent of “identified resource” in the Bakken and Eagle Ford, based on current well spacings of 80 acres in the Eagle Ford and 320 acres in the Bakken, said Matt Fox, the company’s executive vice president of exploration and production. He said “key additions” from new organic reserve replacements come from the Eagle Ford and the Bakken plays.
ConocoPhillips, which operates through its Burlington Resources subsidiary in the Williston Basin, has a five-year plan to spend $5 billion in the Bakken to grow production to more than 50,000 boe per day by 2017. The company has more than 626,000 acres prospective for the Bakken and estimates a drilling inventory of more than 1,400 wells.
Preliminary year-end 2013 proved reserves are reported at 8.9 billion boe, up 3 percent from 2012, the company said, adding that proved organic reserve additions are expected to be about 1.1 billion boe, representing an organic reserve replacement ratio of 179 percent of 2013 production. About 470 million boe are primarily in liquids-rich plays, including the Eagle Ford and Bakken.
Liquids make up 60% of reserves
Liquids comprised about 60 percent of the reserve additions, and another 15 percent were tied to liquids pricing through liquefied natural gas, LNG.
Lower 48 and Latin American production for the 2013 fourth quarter averaged a combined 497,000 boe per day, an increase of 22,000 boe per day compared with the same period in 2012. Lower 48 production alone was up 34,000 boe per day, representing overall 7 percent growth compared to 2012.
“But more importantly behind this overall growth, our oil production grew 24 percent year-on-year delivering the mix shift we’re targeting as we execute our strategy,” Fox said.
In 2012, ConocoPhillips spun off its refinery and midstream assets into Phillips 66 to become a pure exploration and production, E&P, company. One of its North American goals was to increase valuable liquids production. During 2013, liquids output from continuing operations increased to 56 percent of total production “and should continue to improve in 2014 and beyond,” said Jeff Sheets, executive vice president and chief financial officer for ConocoPhillips.
“You just saw a fairly large shift in liquids production … in very significant percentage related primarily to Eagle Ford and the Bakken, the biggest driver of that change,” he added.
Overall production slips
Total worldwide company production from continuing operations for the fourth quarter of 2013 averaged 1.473 million boe per day, down 93,000 boe per day compared with the fourth quarter of 2012. The decrease was due primarily to normal field decline, the impact of the disruption in Libya and weather-related downtime, partly offset by new production from development programs, including the Bakken, the company said.
Production from continuing operations for full-year 2013 averaged 1.502 million boe per day, compared with 1.527 million boe per day for 2012. Adjusted for dispositions, Libya and downtime, production grew by 30,000 boe per day, or 2 percent compared with 2012, the company emphasized. Viewed another way, growth of 207,000 boe per day last year was 30,000 bpd higher than decline of 177,000 bpd.
“The majority of our growth came from our development and major projects in the Lower 48 shale plays and the oil sands in Asia,” Sheets said.
Unconventional exploration in North America during the 2013 fourth-quarter remained focused on drilling in the Niobrara and Permian Basin in the Lower 48, as well as the Montney, Duvernay and Canol plays in Canada.
Conoco targets 1.55 million boepd
The company has targeted daily production of 1.55 million boe in 2014, but said it will exclude Libya from company projections.
“So we now think of this 1.472 million boe per day as the base on which we are going to grow 3 percent to 5 percent in 2014 and beyond,” Sheets said.
Meanwhile, ConocoPhillips generated $15.8 billion in cash from continuing operations in 2013, received $10.2 billion in proceeds from asset dispositions and paid dividends of $3.3 billion. The company also financed a $16.3 billion capital program for continuing operations and fully prepaid a $2.8 billion joint venture acquisition obligation to the company’s 50 percent owned FCCL business venture.
However, ConocoPhillips’ adjusted earnings of $1.74 billion for the 2013 fourth quarter were essentially flat to the prior year’s fourth quarter and down slightly sequentially. “Some of the drivers in this quarter’s performance aren’t obvious,” Sheets noted.
Embedded in the earnings, he explained, were weaker liquids realization in North America, reflecting wide price differentials to benchmarks West Texas Intermediate and Western Canadian Select. Moreover, production volumes were negatively impacted by unusual weather in the Lower 48 and the North Sea.
“We also had continued curtailment in Libya and a plan to turnaround in Qatar,” Sheets said. But adjusted full-year earnings of $7.1 billion were up 5 percent compared to 2012’s adjusted earnings, he added.
