Homesick Oil Majors Turn Home for Growth
This company is homesick, primarily due to the declining production of its base assets. To compensate for the output declines, ConocoPhillips plans on investing billions in its home country.
Close to home
ConocoPhillips plans on investing $3 billion over the next five years in the Permian Basin. It has 1 million net acres with 800 million barrels of recoverable oil equivalent in the area.
Conoco plans on boosting production in the play by 40,000 boe/d through 2017 to help offset the decline of its older assets. Permian production growth won't be enough though, which is why it also set its sights up north.
In the Bakken play, Conoco plans on investing $4 billion over the next five years to explore its 626,000 net acre position in the area. The company sees 600 million barrels of recoverable oil equivalent in the area and estimates production will rise 45,000 boe/d by 2017.
Even that won't be enough to offset declining base output, so Conoco decided to pull out the big guns.
In the Eagle Ford, Conoco is betting big with $8 billion being spent to push up production over the next five years. It has 227,000 net acres in the play with 1.8 billion barrels of recoverable oil equivalent. All of that oil has given Conoco over 1,800 locations to drill and as such forecasts an increase of 130,000 boe/d in production by 2017.
All of these plays combined will bring online 215,000 boe/d of additional production by 2017, and the best part is that it's mostly oil. Right now, roughly 30% of Conoco's output in the continuous 48 states is oil, but by 2017 that will hit 60%. More oil means higher margins and a larger free cash flow to pour money into dividend increases or projects to increase production.
ExxonMobil , the $400 billion oil giant, has plans to increase North American oil production. Back in 2012 Exxon increased its acreage in the Bakken play by 50% to boost its position to ~600,000 net acres.
The reason Exxon is purchasing additional land is the explosive production growth in the region. In Exxon's latest quarter it saw 74% growth in the Bakken with production hitting 60,000 barrels of oil equivalent a day.
Part of this is attributed to more wells coming online and part is due to better drilling techniques, such as pad drilling, which have resulted in higher 30-day production levels, up 15% in 2013 after rising 20% in 2012. As Exxon continues to drill deeper and utilize pad drilling this could keep rising and further push up output.
Exxon has also turned its eye south of the Bakken to central Oklahoma. Oklahoma is home to the liquids rich Ardmore play, where Exxon owns 280,000 net acres. Currently Exxon is running 12 rigs in the area, which enabled it to boost output by 73% year over year to 31,000 boe/d.
Exxon plans on ramping up production in the area by expanding into the nearby Caney play. In its latest quarter, three wells were brought online to identify the total recoverable reserves in the play. Exxon has high hopes for the play due to growth potential and higher-margin liquid production.
On the other side of things, a smaller E&P player is trying its luck on shale plays as well.
Cabot Oil & Gas is a lesser known player expecting very strong production growth out of the Marcellus Shale. Cabot owns 200,000 net acres in the play with plans to complete 100 net wells in 2013 with six rigs up and running.
Cabot has 3,000 potential drilling locations in the Marcellus, which will enable it to hit its guidance for total production growth of 44%-54% in 2013. On top of that management is guiding for 30%-50% growth in 2014. Going forward Cabot has over 25 years of drilling inventory in the play, which will increase output for a long time.
Cabot has a breakeven cost of $1.20 per million cubic feet of natural gas in the Marcellus, so higher levels of production will result in very profitable returns. Cabot can use the additional cash flow to keep boosting production and utilize Marcellus' large drilling inventory.
The Marcellus Shale is going to be a major contributor toward Cabot's guidance, but it needs something more to hit high double digit growth. The liquids-rich Eagle Ford/Pearsall play is going to make that happen.
Cabot owns 62,000 net acres in the Eagle Ford and 71,000 net acres in the Pearsall with plans to complete 45 net wells in the area in 2013 with two rigs. This will enable Cabot to differentiate its revenue stream away from just natural gas to liquids and boost its margins.
The oil majors investments in America will help offset declining output in base assets. Higher production levels will boost cash flow and allow for bigger payouts or a larger capital expenditure budget. Smaller players have stronger growth potential, but are more at risk of fluctuating energy prices.
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