ConocoPhillips Chief Executive Jim Mulva is smiling these days with oil prices running about $60 per barrel instead of the $30-$40 where crude ranged during much of the first quarter when the Houston-based major saw its earnings fall to less than a quarter of their year-earlier level.
Speaking to journalists after the company’s annual shareholder meeting Wednesday, Mulva noted that oil prices around $50 to $60 boost Conoco’s cash flow and reflect confidence in the economy. Longer term, he is looking for oil to settle between $70 and $80, possibly for five to 10 years.
John Carrig, Conoco’s president and chief operating officer, said the higher prices and the associated improved cash flow would help the company reduce its debt toward its goal of 20%-25% from the current level of 34%. He sees US natural gas prices moving into the $6-$8 per million Btu range in the longer term, up from a low near $3/MMBtu only a few weeks ago.
However, Mulva said Conoco would stick to its planned capital budget of $12.5 billion no matter how much prices improve.
Carrig indicated that the company is getting more for each dollar it spends as it works to bring down the costs of goods and services it purchases. The goal is to get costs back to their 2007 level.
At the operational level, Carrig said the second phase of the Bohai Bay project offshore China is ahead of schedule. Earlier this week, production personnel successfully hooked up the floating production, storage and offloading (FPSO) facility and the riser utilities platform to the subsea equipment.
Next year, the field is projected to reach peak production, which will yield 70,000 barrels per day net to Conoco. Bohai Bay is one of many upstream projects that will help Conoco maintain its production at around 1.8 million boe/d for the next three-to-four years before it moves into a growth phase.
Conoco’s oil sands joint venture with Canada’s EnCana is going according to expectations, Mulva said, in spite of the collapse of oil prices over the past year. He acknowledged that some parts of the project have been delayed for several months in order to get better prices on materials and services (OD Mar.27,p6).
The project integrates an oil sands project developed by EnCana in northern Alberta with two of Conoco’s US refineries, one in Illinois and the other in Texas.
Conoco is a partner with BP in the Denali Pipeline, a proposed project to transport Alaska North Slope natural gas to Alberta’s natural gas system for redelivery to markets across North America (OD Apr.9,p8). Mulva did not sound overly enthusiastic about the venture, saying that the sponsors were having to look 10 years out at what the US gas market might look like, amid growing competition from domestic shale gas and imported liquefied natural gas (LNG).
Meanwhile, costs are soaring. He said preliminary work indicates the cost of the line from the North Slope to the Alberta-British Columbia border now exceeds $30 billion, putting it above previous estimates.
During the shareholder meeting, Mulva defended Conoco’s participation in the US Climate Action Partnership, a business trade organization that supports the introduction of a cap-and-trade scheme to reduce greenhouse gas emissions in the US.
The chief executive said Conoco’s membership gave the company a “seat at the table” with Congressional leaders developing the scheme. Such access can help ensure that cap-and-trade does not place a disproportionate cost burden on the oil and gas industry, he said.
“By not participating, you’re not being represented,” said Mulva.
Environmental advocacy group Amazon Watch released a new report ahead of Conoco’s shareholder meeting detailing the major’s operations in the “pristine tropical rainforest” in the Peruvian Amazon. Conoco is one of the largest leaseholders in the region, with exploration and drilling rights that span 10.5 million acres across five blocks.
Amazon Watch representatives Andrew Miller and Mitch Anderson addressed Mulva during the meeting, asking the Conoco boss if his firm would continue developing the ecologically-sensitive region that is also home to several indigenous groups still living in voluntary isolation.
Mulva said Conoco has actually cut back on its activity in Peru due to “prospectivity and the current economic situation.”
He said it would be premature to comment on Conoco’s final plans in the region, but added that his company will continue to share an open dialogue with the advocacy group and weigh the environmental and social consequences of its activities before moving forward.
