ConocoPhillips Cuts Back on Capital Spending, Prepares for Long Haul of Low Oil Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--ConocoPhillips (NYSE:COP) (Houston, Texas) became the latest in what could be a long line of oil producers to slash capital spending in response to stubbornly low oil prices. The company took its full-year spending plans down from last quarter's $5 billion estimate to $4.8 billion, after second-quarter results showed its net loss more than tripling to $3.4 billion from the same period last year. Nonetheless, executives and investors believe the tightened spending ultimately bodes for a better near-future. Industrial Info is tracking nearly $52 billion in active projects involving ConocoPhillips.

Overall production fell to 1.4 million barrels of oil equivalent per day, an 8% decline from second-quarter 2016. Weak natural gas prices also have played a role in ConocoPhillips' reduced outlook; the company recently sold off its natural gas assets in Texas' Barnett Shale, and both its oil sands and natural gas assets in Canada, in deals worth about $305 million and $13.3 billion, respectively. For more information, see April 10, 2017, article - Cenovus Closer to Taking Top Spot in Canadian Thermal Production as Deal with ConocoPhillips Progresses; April 14, 2017, article - ConocoPhillips Continues Asset Selloff with San Juan Basin Deal; and May 3, 2017, article - ConocoPhillips Makes Headway on Natural Gas Projects in Texas and Alaska as it Trims Capital Spending.

ConocoPhillips also seems to be preparing for continued low prices for the near-term, as a substantial chunk of the quarter's net loss was attributed to non-cash impairment charges for the Australia Pacific LNG (APLNG) project, in which the company has a 37.5% ownership. Industrial Info is tracking the proposed, $12.08 billion Phase III addition at APLNG, which would include a third and fourth LNG production train, each with a capacity of 3.5 million metric tons per year, to bring total capacity at APLNG to between 16 million and 18 million metric tons per year. The 90-day operational phase for the two trains' lenders' test was completed during the quarter, with 60 LNG cargos loaded during the first half of the year. For more information, see Industrial Info's project report.

Executives noted in a quarterly earnings-related conference call that cash provided by operating activities exceeded capital spending and dividends for the fourth consecutive quarter. Investors also were happy that the company slashed its debt during the quarter and is now expecting to save $16 billion from dispositions during 2017. When excluding the dispositions, underlying production actually increased from ramp ups at several major projects, multiple development programs and improved well performance, according to executives.

Among its more promising U.S.-based projects, ConocoPhillips' $900 million Greater Moose's Tooth Unit 1 addition at the Alpine Oil & Natural Gas Central Processing Plant in Nuiqsut, Alaska, saw construction completed and was prepared for startup. The massive project includes the construction of a new well pad with eight wells, with the longer-term goal of 33 production and injection wells, and a gathering pipeline with a capacity of 20,000 to 25,000 BBL/d. For more information, see Industrial Info's project report and May 3, 2017, article - ConocoPhillips Makes Headway on Natural Gas Projects in Texas and Alaska as it Trims Capital Spending.

In Europe, a dispute over labor conditions is hindering ConocoPhillips' plans to remove ageing platforms from the North Sea's Ekofisk Field. Workers hired by heavy-lift player Heerema Marine Contractors (HMC), which signed on for engineering, procurement and construction (EPC) services earlier this year, have told Norwegian union officials that they are being paid less than what is allowed by Norwegian law; HMC, in response, said it "will comply with Norwegian legislation in this respect and for this project," according to Upstream Online.

Industrial Info is tracking more than $838 million in active projects involving ConocoPhillips' work in the Ekofisk Field, which can be found in project reports on the $50 million topside removal and $25 million jacket removal for Platform A; the $200 million well-plugging and abandonment, $30 million topsides and bridge removal, and $20 million jacket removal for Platform B; and the $250 million well-plugging and abandonment of Platform C, among many other components.

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