ConocoPhillips cuts spending by 20 per cent

Budget cuts
Source: DollarPhotoClub

ConocoPhillips, the world’s largest independent exploration and production company, has been quick to react to falling crude oil prices by reducing its spending in the coming year.

The company’s 2015 capital budget of $13.5 billion shows a decrease of approximately 20 per cent compared to 2014. The company’s press release explained that reduction in capital relative to 2014 reflects lower spending on major projects, several of which are nearing completion, as well as the deferral of spending on North American unconventional plays.

According to the company statement, lower investment level should not hamper production growth, which is expected to reach 3 per cent in 2015 from continuing operations, excluding Libya.

The company expects the key sources of growth to include recent major project startups in Canada, Europe and Malaysia, development drilling programs in the Eagle Ford and Bakken, and new production from 2015 major project startups at Eldfisk II, the Australia Pacific LNG (APLNG) Project and Surmont Phase 2.

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

“This plan demonstrates our focus on cash flow neutrality and a competitive dividend, while maintaining our financial strength. We are fortunate to have significant flexibility in our capital program. Spending on several major projects has peaked and we will get the benefit of production uplift from those projects over the next few years. In addition, we have significant identified inventory in the unconventionals, where we also retain a high degree of capital flexibility.”

The company stated that the 2015 capital budget includes funding for base maintenance and corporate expenditures, development drilling programs, major projects, and exploration and appraisal spending.

The breakdown is as follows:

Base Maintenance

Approximately $1.9 billion is allocated to base maintenance and corporate expenditures. This is a slight reduction compared to 2014, reflecting lower planned spending in several producing assets across the portfolio.

Development Drilling Programs

Approximately $5.0 billion is allocated toward the company’s development drilling programs. This compares to the 2014 budget of $6.5 billion. In 2015, the Lower 48 development program capital will continue to target the Eagle Ford and Bakken, and will defer significant investment in the emerging North American unconventional plays, including the Permian, Niobrara, Montney and Duvernay. The company retains the flexibility to ramp up or down activity in the unconventionals.

Major Projects

Approximately $4.8 billion is focused on the company’s sanctioned major projects. This represents a significant reduction compared to 2014, which included peak spending at the APLNG and Surmont Phase 2 projects.

Funding in 2015 will focus on completion of APLNG and Surmont Phase 2, as well as multiple projects in Alaska, Europe and Malaysia.

Exploration and Appraisal

Approximately $1.8 billion is allocated toward the company’s exploration and appraisal programs, down slightly compared to 2014. This spending will focus on conventional activity in the U.S. Gulf of Mexico, offshore West Africa and Nova Scotia, as well as unconventional activity in North America.

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