ConocoPhillips slashes 2015 capital budget

ConocoPhillips has elected to reduce its 2015 capital budget to $13.5 billion, down 20% compared with this year’s budget. The news comes on the heels of crude oil prices hitting 5-year lows (OGJ Online, Dec. 8, 2014).  

The cut by the Houston-based independent reflects lower spending on major projects—several of which are nearing completion—as well as the deferral of spending on North American unconventional plays, ConocoPhillips says.  

The company will “defer significant investment” in the Permian, Niobrara, Montney, and Duvernay. The company’s Lower 48 development program, meanwhile, will continue to target the Eagle Ford and Bakken shales, both of which are expected to serve as primary areas of production growth.

ConocoPhillips in April increased its estimated resource base in the Eagle Ford to 2.5 billion bbl of oil in place from 1.8 billion bbl, as well as its estimated production from current volumes to more than 250,000 boe/d by 2017 (OGJ Online, Apr. 11, 2014).

The company says it will retain the ability to ramp up or down activity in the unconventional plays. Overall, just $5 billion is allocated toward development drilling programs, compared with $6.5 billion in 2014.

"We are setting our 2015 capital budget at a level that we believe is prudent given the current environment," said Ryan Lance, ConocoPhillips chairman and chief executive officer.

"Spending on several major projects has peaked and we will get the benefit of production uplift from those projects over the next few years,” Lance explained. “In addition, we have significant identified inventory in the unconventionals, where we also retain a high degree of capital flexibility."

ConocoPhillips previously reported its intention to execute a $16 billion/year capital program over the next several years and achieve the company’s organic reserve replacement target of more than 100%.

Production to rise

ConocoPhillips still expects 3% overall production growth in 2015 compared with this year from continuing operations, excluding Libya.

Sources of growth internationally include recent major project startups in Canada, Europe, and Malaysia, and new production from 2015 major project startups at Eldfisk II in the North Sea (OGJ Online, Mar. 23, 2011); the Australia Pacific LNG (APLNG) project (OGJ Online, Jan. 24, 2012); and Surmont Phase 2 in Alberta (OGJ Online, Jan. 19, 2010).

Sanctioned major projects will receive $4.8 billion in 2015, a significant reduction compared with this year, which included peak spending at APLNG and Surmont Phase 2. Funding in 2015 will focus on completion of those two projects, as well as several others in Alaska, Europe, and Malaysia, the company says.

ConocoPhillips in October reported plans for a drill site on Kuparuk oil field on Alaska’s North Slope, representing the first new drill site on that location in more than a decade. Peak production is expected to reach 8,000 b/d of oil (OGJ Online, Oct. 27, 2014).

Exploration and appraisal programs will receive $1.8 billion in 2015, down slightly compared with this year, focusing on conventional activity in the US Gulf of Mexico, offshore West Africa and Nova Scotia, as well as unconventional activity in North America.

A second oil discovery was made offshore Senegal last month by a group comprised of ConocoPhillips, Cairn Energy, and FAR Ltd. (OGJ Online, Nov. 11, 2014). ConocoPhillips and Suncor Energy Inc. in June joined Shell Canada as partners in exploring the deepwater Shelburne basin off Nova Scotia (OGJ Online, May 6, 2014; June 11, 2014).

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