ConocoPhillips’s minimum capital spending requirement
On November 10, 2016, ConocoPhillips (COP) held its Analyst and Investor Meeting (or AIM) in New York City. The company revealed the minimum yearly capital it would need to spend in order to keep its yearly production flat at ~1,555 Mboe (thousand barrels of oil equivalent) per day for the next five years.
According to ConocoPhillips’s AIM presentation, it would be able to keep its production flat with less than $1 billion per year to support its base production and under $4 billion per year to replace its base decline.
This means that ConocoPhillips would need less than $5 billion per year to keep its production flat for the next five years. This number does not represent COP’s capital expenditure guidance for the next five years, but it represents its expenditure if it decides to keep its production flat.
Reasons behind ConocoPhillips’s lower capital intensity
ConocoPhillips’s lower capital intensity of less than $5 billion per year can be attributed to its resource portfolio, which has a highly competitive, unmitigated decline rate. COP’s production is underpinned by its long-life LNG and oil sands projects, which have low levels of sustainable capital requirements to keep these facilities at full production rate.
These assets have the capacity to operate at a full production rate for decades. Also, COP has low capital intensity in its other conventional and unconventional assets. We’ll study ConocoPhillips’s diversified asset classes in Part 8 and Part 9 of this series.
Other oil and gas producers
Among the other oil and gas producers, Southwestern Energy (SWN), EOG Resources (EOG), and Range Resources (RRC) operate in the unconventional space. These producers have higher decline rates for their productions.
In the next part, we’ll compare ConocoPhillips’s capital intensity with other independent oil and gas producers.