ConocoPhillips Announces 2016 Operating Plan and Capital Budget of $7.7 Billion; Expects $2.3 Billion from Asset Dispositions
ConocoPhillips (NYSE: COP) today announced its 2016 operating plan. Key
highlights from the plan include:
$7.7 billion capital budget;
1 to 3 percent production growth, adjusted for asset sales; and
$7.7 billion of operating costs.
Chairman and Chief Executive Officer Ryan Lance commented, “We’re
setting an operating plan for 2016 that recognizes the current
environment, which remains challenging. We are significantly reducing
capital and operating costs, while maintaining our commitment to safety
and asset integrity. We also retain the flexibility to adjust capital
spending in response to market factors. Our plan highlights the actions
we accelerated over the past year to position our company for low and
volatile prices. As we enter 2016, ConocoPhillips has greater capital
flexibility, a more competitive cost structure, a streamlined portfolio
and the ability to deliver profitable growth from a high-quality
resource base. These advantages, coupled with our strong balance sheet,
give us the ability to maintain a compelling dividend and close the gap
on cash flow neutrality across a range of prices.”
The company also announced it expects to close approximately $2.3
billion of non-core asset sales. This number includes approximately $0.6
billion from transactions that closed through the first three quarters.
The remaining $1.7 billion represents transactions with definitive
agreements in place that are expected to close in the fourth quarter of
2015 or the first quarter of 2016. Production from these assets, of
which 80 percent is natural gas, accounts for more than 70 thousand
barrels of oil equivalent per day (MBOED) of 2015 production. The
company continues to pursue ongoing, non-core asset sales across the
2016 Capital Budget Allocation
The 2016 capital budget of $7.7 billion represents a 55 percent
reduction compared with 2014 capital spending and a 25 percent reduction
compared with expected 2015 capital spending. This includes funding for
base maintenance and corporate expenditures, development drilling
programs, major projects, and exploration and appraisal spending.
Reductions compared with expected 2015 capital spending of $10.2 billion
come primarily from lower major project spending, deflation capture and
By category, capital is allocated with approximately $1.2 billion, or 16
percent, to base maintenance and corporate expenditures; $3.0 billion,
or 39 percent, to development drilling programs; $2.1 billion, or 27
percent, to major projects; and $1.4 billion, or 18 percent, to
exploration and appraisal. By region, the breakdown is as follows:
Approximately $2.6 billion, or 34 percent, is
allocated to the Lower 48. This is a reduction of about 30 percent
compared with 2015 expected spending, primarily reflecting improved
efficiencies, lower average rig count and lower infrastructure spending
in the unconventionals, and deflation. Capital spending in 2016 will
focus predominantly on the unconventionals where the company plans to
maintain current activity levels with 13 rigs across the Eagle Ford,
Bakken and Permian, with ongoing flexibility to ramp up or down activity
in these plays. Other spending will target exploration and appraisal
activity in the Gulf of Mexico, base maintenance and conventional
Approximately $0.8 billion, or 10 percent, is planned
for Canada. This reduction of approximately 30 percent compared with
2015 expected spending is primarily due to the roll off of spending at
Surmont 2. 2016 capital will focus on development drilling and appraisal
in the unconventionals, continued ramp up at Surmont 2 and two
exploration wells offshore Nova Scotia.
Approximately $1.3 billion, or 17 percent, is
allocated to Alaska. This reduction of about 5 percent compared with
2015 expected spending is predominantly the result of reduced major
project spending in the region following the startup of CD5 and Drill
Site 2S in 2015. Capital in 2016 will mostly target development
drilling, base maintenance and the progression of several major projects.
Approximately $1.3 billion, or 17 percent, is
allocated to Europe. This reduction of approximately 15 percent compared
with 2015 expected spending is primarily the result of reduced
conventional drilling and lower major project spending across the
region. Capital in 2016 will focus on major projects across the region,
development drilling in the Greater Ekofisk Area and base maintenance.
Asia Pacific and Middle East
Approximately $1.4 billion, or
18 percent, is allocated to Asia Pacific and Middle East. This reduction
of roughly 30 percent compared with 2015 expected spending is largely
the result of reduced major project spending at the Australia Pacific
LNG (APLNG) Project. The 2016 capital budget includes approximately $0.6
billion of capital at APLNG to achieve the startup of Train 2 and
complete deferred activity from 2015. The remainder of the 2016 capital
will primarily fund major projects in Malaysia and China, as well as
development drilling around legacy assets.
Approximately $0.3 billion, or 4 percent, is allocated
toward other 2016 activity, including corporate programs.
2016 Production Outlook
The company’s full-year 2015 production guidance remains unchanged at
1,585 to 1,595 MBOED, excluding dispositions. Full-year 2015 production
associated with $2.3 billion of divestitures is approximately 70 MBOED.
Adjusted for these volumes, 2015 production guidance would be 1,515 to
1,525 MBOED. This is the new baseline from which the company expects to
grow 1 to 3 percent in 2016. All guidance excludes Libya.
Production growth in 2016 will come primarily from the startup of APLNG
in Australia, continued ramp up of oil sands production in Canada and
recent project startups in Alaska. Growth from these areas will be
partially offset by decline in Europe and Lower 48.
2016 Operating Costs Outlook
2016 operating costs are expected to be $7.7 billion, compared with
$10.5 billion in 2014. When adjusted for $0.8 billion of special items,
operating costs are improved by $2 billion compared with 2014 adjusted
operating costs of $9.7 billion and $0.5 billion below expected 2015
adjusted operating costs of $8.2 billion. Reductions are primarily the
result of sustainable internal cost reduction efforts, efficiency gains,
deflation capture and market impacts, partially offset by increased
costs associated with higher production. 2016 operating costs include
$0.4 billion associated with deepwater exploration where the company is
pursuing a phased exit. Other expense guidance items will be provided in
“Our 2016 operating plan achieves a balance between exercising
flexibility to manage through the current oil and gas price downturn,
and retaining optionality for medium- and long-term growth,” added
Lance. “We have a unique combination of a resilient portfolio and
financial flexibility to manage through the current price cycle, while
preserving value and continuing to deliver on our commitments to
ConocoPhillips will host a conference call today at 10 a.m. EST to
discuss the details of its 2016 operating plan. The call will include a
review of capital, production, operating costs and financial priorities.
To listen to the call and view related presentation materials, go to www.conocophillips.com/investor.
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ConocoPhillips is the world’s largest independent E&P company based on
production and proved reserves. Headquartered in Houston, Texas,
ConocoPhillips had operations and activities in 25 countries, $31
billion in annualized revenue, $106 billion of total assets, and
approximately 17,800 employees as of Sept. 30, 2015. Production,
excluding Libya, averaged 1,586 MBOED for the nine months ended Sept.
30, 2015, and proved reserves were 8.9 billion BOE as of Dec. 31, 2014.
For more information, go to www.conocophillips.com.
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"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
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Use of Non-GAAP Financial Information – This news release
includes the term operating costs. This is a non-GAAP financial measure.
This term is included to help facilitate comparisons of company
operating performance across periods and with peer companies. Operating
costs represent controllable costs and include production and operating
expenses, selling, general and administrative expenses and exploration
expenses excluding dry holes and leasehold impairments.
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