uploads///COP Q Operational Strategies

Can ConocoPhillips’s Operational Strategies Help It Sustain?



ConocoPhillips’s operational strategies

In 3Q16, ConocoPhillips (COP) reported sequentially higher production of 1,557 Mboe (thousand barrels of oil equivalent) per day. We’ll look at COP’s production in detail in the next part, but before we do, let’s take a look at the company’s operational strategies.

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Turnaround activity

In order to avoid unexpected shutdowns during production, proper maintenance shutdowns or turnaround activity is an essential part of oil and gas production. ConocoPhillips completed its major turnaround activities in Alaska in 3Q16.

The activities were carried out at the Kuparuk and Alpine locations. They affected COP’s 3Q16 production from Alaska by almost 17 Mboe per day, or ~9.0%, when compared to 2Q16. In 3Q16, COP’s production from the Alaska region came in at ~162 Mboe per day.

In 2Q16, ConocoPhillips carried out similar turnaround activities in Europe. All the major turnaround activities for 2016 ended in 3Q16. In its 3Q16 earnings call, the company commented on its turnaround activities. Al Hirshberg, COP’s executive vice president of Production, Drilling, and Projects, said, “Overall, quite successful operationally and came about right about on target. So less than 1,000 barrels a day delta from turnaround actuals versus what we had expected.”

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Train 2 at APLNG

In 3Q16, ConocoPhillips achieved a significant milestone of first production from Train 2 at the APLNG (Asia Pacific Liquefied Natural Gas) project. Located in Australia, the project is the main driver for APME (Asia Pacific and the Middle East) production growth.

Train 2 LNG started delivering cargo in early October 2016. Year-to-date, both Train 1 and Train 2 have delivered around 50 cargoes from APLNG. The company expects both trains to run with full capacity by 2Q17.

ConocoPhillips’s divestitures

In 3Q16, ConocoPhillips entered into an agreement to sell Block B assets in Indonesia. That transaction is expected to close in 4Q16.

In 2Q16, ConocoPhillips sold its three offshore exploration blocks in Senegal for $430.0 million. That divestiture is part of the company’s strategy to exit from deepwater exploration in West Africa.

In 2016, ConocoPhillips completed asset sales of $1.3 billion. Production associated with these assets was 27 Mboe per day. While commenting on the 2016 asset disposition program, ConocoPhillips’s chairman and chief executive officer Ryan Lance said in a company press release, “Our 2016 asset disposition program success puts us in a strong position to begin implementing the differential value proposition we outlined at our Analyst and Investor Meeting in early November.”

To know more about ConocoPhillips’s value proposition, please read Market Realist’s series Key Takeaways from ConocoPhillips’s Analyst and Investor Meeting.

Other upstream players

In order to deal with lower energy prices and raise cash, other upstream players from the S&P 500 (SPY), including Murphy Oil (MUR), Consol Energy (CNX), Devon Energy (DVN), Chesapeake Energy (CHK), and Anadarko Petroleum (APC), have also recently completed divestitures.

In the next part of this series, we’ll take a look at ConocoPhillips’s production.


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