ConocoPhillips plans to drop its capital expenditures budget, and to maintain a conservative approach, despite the rally of oil prices; CEO of the company Ryan Lance revealed today during an update on the market and its own operations.
Firstly, according to media reports, the company’s strategy includes cutting its capital and cost guidance by a combined $300 million; and also dropping its capital expenditures budget for the year to $5.3 billion.
However, the company will also increase its buyback shares plan by $1 billion; which will bring the company capital returns for 2021 around $6 billion.
Secondly, the strategy will be a cautious one, according to reports; even though the oil prices now easily outface forecasts made in 2020. This cautious approach of ConocoPhillips will not consider funding increases to production, Lance said.
Thirdly, the main focus of the company will be maintaining its shale business in a “very disciplined manner for free cash flow … not growth.” Specifically in the Permian Basin. Lance released an updated 10-year plan during his presentation. In the plan, he considers a goal of $70 billion in free cash flow over the next decade.
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ConocoPhillips leveraging from Concho’s acquisition
He remarked during the presentation. “The industry remains volatile. Investors have long memories for the poor performance this sector delivered over the past decade. It’s not a sure thing that discipline will hold across the sector and inflation is rearing its head.” Said Lance, Highlighting the importance of the cautious approach.
Moreover, the executive also expects 3% production growth with annual capital expenditures averaging $7 billion; $5 billion of which will be allocated to the Lower 48 US states, while the remaining $2 billion will go to Alaska and international assets.
In addition, around 70% of ConocoPhillip’s budgets for the Lower 48 states area will be focused on the Permian basin; from west Texas and south-east New Mexico. This would provide $23 billion of the decade’s free cash flows; all on its own.
On the other hand, about the relevance of the acquisition of Concho from ConocoPhillips; its executive VP for the Lower 48, Timothy Leach, said. “Concho’s experience in the basin gives us knowledge; and an advantage from an execution standpoint. We’re also quickly applying that experience to the heritage ConocoPhillips position. The company’s expanded size and scale are advantages we wouldn’t have had on the Concho side; not without this transaction.”
Finally, company officials spoke about its good performance in Alaska; they said the company expects $850 million barrels of oil equivalent production over the next decade; at an average cost of less than $30 per barrel.