Management said 2016 volumes will rise by 1% to 3%, fueled by project startups in Alaska, Australia and Canada oil sands
ConocoPhillips (ticker: COP) is ramping down its 2016 operations, with the majority of the pullback focused on North America.
The 2016 guidance release, issued on December 10, 2015, outlines a capital budget of $7.7 billion – about 25% below its anticipated capital spending of $10.2 billion in 2015. Operating costs are forecasted to drop to $7.7 billion from $8.2 billion in the same time frame. Overall, expenditures for development and operating costs in 2016 are projected to be about 16% lower on a year-over-year basis.
The budget is 55% below 2014 expenditures, and Raymond James Equity Research points says Hess Corp. (ticker: HES) and Marathon Petroleum (ticker: MPC) are planning to trim 2016 expenditures by 27% and 29% on a year-over-year basis, but have not made the announcements official just yet.
Chevron (ticker: CVX) took a similar approach in its guidance, announcing a budget 24% below its 2015 levels and naming the dividend its top priority. About 70% of Chevron’s $26.6 billion spending plan will be directed outside of the United States on what management described as “short-term, high-yield projects.”
ConocoPhillips in 2016
The operating plan “recognizes the current environment, which remains challenging,” said Ryan Lance Chairman and Chief Executive Officer of ConocoPhillips. Lance said about $0.4 billion of the operating costs are associated with pursuing an exit from certain deepwater exploration. All guidance excludes any COP activity in Libya.
Capital activity in the continental United States and Canada is anticipated to drop by 30% from 2015 levels, and will garner 34% and 10%, respectively, of its 2016 guidance. Other areas of operation in Alaska, Europe and Asia Pacific/Middle East will decline in terms of capital allocation by anywhere from 18% to 30%.
Despite the pullback, COP believes 2015 production guidance will reach its range of 1,515 to 1,525 MBOEPD, adjusted for dispositions. Management said 2016 volumes will rise by 1% to 3%, fueled by project startups in Alaska, Australia and Canada oil sands.
Sales are Underway
The forecasted $2.3 billion of asset sales have already executed $0.6 billion to date, allowing the company to get a running start into 2016. The $1.7 billion in additional sales are apparently already in place and expected to close in early 2016, and COP will explore non-core asset sales in the 2016 environment. Its stake in an Indonesian gas project is fielding offers – along with its deepwater assets, which do not have any associated reserves due to being in the exploration phase.
The Dividend is Sacrosanct
In line with previous quarterly reports and announcements, ConocoPhillips reiterated that its dividend is of utmost importance. “We view the dividend level as a long-term decision, and we’ve been in the current low price cycle for a relatively short period of time,” Lance said. “We’re choosing to exercise flexibility during this downturn through CapEx and the balance sheet if necessary, not via the dividend.”
The company actually increased its dividend in 2015 amid the commodity downturn. Lance described the increase as a “modest yet important signal to our owners.” Raymond James points out that COP’s 6% yield is significantly higher than any non-integrated United States producer.