Even the strongest oil majors have not been immune from the sapping effects of the prolonged oil price slump (still only in the $40- to $50-a-barrel range, compared to more than $100 a barrel from 2011 through 2014). Case in point, last week ConocoPhillips, the largest US-based independent oil producer (based on reserves and oil production), announced plans to sell $5 billion-$8 billion in natural gas assets and trim its 2017 capital budget by 4%. The asset sale reflects a major move to reduce the company’s $28.7 billion debt load.
Eyeing near-term Brent prices of about $50 per barrel, the company’s priorities include bringing down its debt to a more manageable $20 billion, a 20%-30% payout of operating cash flows to shareholders, and a modest production growth to drive margin and cash flow expansion.
ConocoPhillips has set a goal of having a strong resilience to low commodity prices with the flexibility to also take advantage of ramping up production during periods of higher prices.
Its spending in 2017 will focus primarily on flexible unconventional development programs in the Lower 48; conventional projects in Europe, Asia/Pacific, and Alaska; and base asset maintenance. Approximately $600 million is included for exploration, which is primarily focused on unconventional assets, appraisal of the Barossa discovery (in Australia), and the closeout of deepwater Gulf of Mexico and Nova Scotia drilling obligations.
Full-year 2017 production is expected to be 1.54 million-1.57 million barrels of oil equivalent per day (flat to 2% growth compared with expected full-year 2016 production of 1.54 million barrels of oil equivalent).
This move also highlights the oil and gas industry’s push for efficiency gains that reduce the cost of producing oil and natural gas in the face of low commodity prices.
With the World Bank predicting oil prices of $55 a barrel in 2017, oil and gas companies are encouraged, but few if any are predicting a return to the “boom time” prices of a few years ago.
In the meantime, ConocoPhillips and others are taking steps to pay down debt and become more efficient in the “new normal” drilling environment of $50-a-barrel oil prices.
British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Peter Doran’s “Breaking Rockefeller” and Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.
Photo courtesy of ConocoPhillips.