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COP: Achieving Flat Production with Less Than $5 Billion in Capital

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ConocoPhillips’s diverse asset classes

According to ConocoPhillips’s (COP) Analyst and Investor Meeting (or AIM) presentation on November 10, 2016, the company can keep its production flat for the next five years with capital spending of less than $5 billion per year. We discussed this in more detail in Part 5 of this series.

In this article, we’ll study how ConocoPhillips plans to achieve this with the help of its diverse asset classes such as its conventional and unconventional LNG and oil sands.

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ConocoPhillips’s LNG and oil sands assets

ConocoPhillips’s (COP) LNG and oil sands assets produce ~500 Mboe (thousand barrels of oil equivalent) per day of production. These assets have the capacity to keep their production flat for decades with low sustaining capital of only ~$0.5 billion during most years.

ConocoPhillips’s megaprojects for this asset class are complete, and they are now in operation. COP plans to continue testing and implementing new technology to drive further improvements. These assets as a group generate positive cash flow above $40 per barrel Brent oil, with a good upside to higher prices.

ConocoPhillips’s conventional assets

ConocoPhillips’s conventional assets produce ~800 Mboe (thousand barrels of oil equivalent) per day of production. These assets are low-risk, legacy assets with medium-cycle projects. In ConocoPhillips’s stay-flat production case, this asset class gets about $3 billion of capital in most years.

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ConocoPhillips’s unconventional assets

ConocoPhillips’s (COP) conventional assets produce ~250 Mboe (thousand barrels of oil equivalent) per day of production. These assets have low execution risk and are a source of large and flexible growth with short-cycle projects.

These assets represent the higher decline part of COP’s asset base. However, ConocoPhillips can hold unconventional production flat and also offset a small decline in its conventional space for ~$1 billion in most years.

Other oil and gas producers

Among the other S&P 500 (SPY) upstream companies, Devon Energy (DVN), Southwestern Energy (SWN), and Pioneer Natural Resources (PXD) operate in the unconventional space. However, Occidental Petroleum (OXY) and Murphy Oil (MUR) have a presence in the conventional space.

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