uploads///COP Q Operating Costs

This Is How ConocoPhillips Is Lowering Its Breakeven Costs


Jan. 12 2017, Updated 7:35 a.m. ET

Cost reduction focus

On November 10, 2016, in its AIM (Analyst and Investor Meeting) presentation, ConocoPhillips (COP) outlined its strategy and actions for accelerating value proposition. Lowering its breakeven cost is one of COP’s important focus areas since it helps the company manage its cash allocation priorities more effectively.

In 3Q16, ConocoPhillips reported production and related operating expenses of ~$1.5 billion, which are ~17.0% lower than ~$1.8 billion 3Q15. That helped the company lower its 3Q16 adjusted operating costs, or total operating costs, ~18.0% compared to 3Q15.

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Adjusted operating costs guidance

Steep reductions in adjusted operating costs for 3Q16 helped ConocoPhillips lower its full-year adjusted operating cost guidance. For 2016, the company now expects full-year adjusted operating costs of ~$6.6 billion, a reduction of ~$200.0 million from its prior guidance of ~$6.8 billion. COP’s adjusted operating cost guidance includes production and related operating expenses of ~$5.7 billion.

Adjusted operating costs per unit of production

As we saw in Part 3 of this series, COP is expecting 2016 production of ~1,565 Mboe (thousand barrels of oil equivalent) per day. When its 2016 adjusted operating cost guidance is divided by its 2016 production guidance, its adjusted operating cost per unit of production guidance for 2016 is about ~$11.55 per boe (barrel of oil equivalent).

Other upstream companies

Due to a prolonged downturn in energy prices, many upstream companies such as Southwestern Energy (SWN), Denbury Resources (DNR), and Devon Energy (DVN) are also focusing on reducing operating costs.

Next, let’s dive even deeper and take a look at ConocoPhillips’s quarterly lifting costs, total production costs and margins, and operating netbacks.


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