ConocoPhillips’s production mix
As seen in the below chart, ConocoPhillips’s (COP) current production mix is ~50% oil (crude oil and bitumen), ~10% natural gas liquids, ~22% international natural gas, and ~18% North American natural gas.
ConocoPhillips’s North American natural gas includes natural gas production from its Alaska, Canada, and Lower 48 operations. International natural gas includes production from its operations in Europe, Asia-Pacific, and the Middle East.
Typically, North American natural gas has lower operating margins when compared with international natural gas due to local price dynamics.
ConocoPhillips’s production mix strategy
As seen in the above chart, ConocoPhillips’s North American natural gas percentage in its 2012 production mix was ~28%, higher than the other components. However, North American natural gas has lower operating margins. In the last four years, ConocoPhillips has reduced its North American natural gas percentage in production mix by almost 10% to ~18%.
In order to accelerate its value proposition, ConocoPhillips is planning to reduce its North American natural gas percentage in production mix even further to ~10% over the next two years. ConocoPhillips plans to achieve this strategy via its strategic asset sale program, in which COP is planning to sell $5 billion–$8 billion of assets with exposure to North American natural gas.
This strategy will also reduce COP’s natural gas liquids percentage in its production mix. Under this strategy, the company plans to increase COP’s oil and international natural gas percentage in its production mix.
We’ll study ConocoPhillips’s divestiture plans in Part 12 of this series.
Other upstream companies
Among the other upstream companies that have higher liquids percentage in their production mix are Diamondback Energy (FANG), Occidental Petroleum (OXY), Devon Energy (DVN), and Murphy Oil (MUR). These companies contained ~87%, ~73%, ~60%, and ~64% liquids in their production mixes, respectively.
The volatility in oil prices also impacts ETFs and ETNs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the VelocityShares 3x Long Crude Oil ETN (UWTI).
Next, let’s take a look at why ConocoPhillips has lower capital intensity.