The oil markets are changing, not only in the last couple of months but also the last couple of years,” said Ryan Lance, chairman and CEO of ConocoPhillips. “There is light at the end of the tunnel, considering that we are seeing a balance in the market as well as a recovery of prices. I do think that prices could snap back in a few years, but my fear is if that happens, then we’ll see the low end of prices once again.”
He stated that because of the cyclical nature of the business, ConocoPhillips is preparing for the inevitable by changing the business model — having a strong balance sheet with the financial flexibility to respond to changes in the price environment — that matches the volatility of the industry.
“We all know what to do when the prices are higher, but what do you do when the prices are at the low end? That’s the question we constantly model our business around, so we reduce our break-even, get our capital flexibility up and really focus the investments on the lowest supply in our portfolio,” Lance said.
Lance provided insight into ConocoPhillips’ financial priorities and operations at the recent CERAWeek by IHS Markit. He confirmed the company places its priorities on a robust dividend with enough cash flow to reduce and improve operational costs.
“You have to be prepared for the bottom end of the cycles because they will get longer and more frequent considering the cycle times in the business are closing with the unconventional revolution that is going on in the U.S,” he stated.
He attributed ConocoPhillips’ success to having a global diverse portfolio. The company is operating in 26 countries around the world, recognizing it is “important to not be reliant on one single geography or geology,” and has a hand in most unconventional plays in North America. Two years ago, the company announced a three-year investment plan to increase capital development programs — primarily in the North American unconventionals — by 50 percent, with annual capital expenditures of about $11.5 billion.
“The difference between us and the other major players is that we pivoted a lot earlier in the unconventional play business as soon as we saw it coming,” Lance said. “In addition, we are about cash flow, not chasing growth, and we are about returns for our shareholders, which is unique in the E&P business.
“We believe we are uniquely positioned to execute a viable, prudent plan that delivers on our commitments to shareholders. The dividend remains our top priority, and we will continue to exercise our capital flexibility and financial strength to achieve cash flow neutrality in 2017. We have successfully delivered on our commitments to shareholders over the past three years, and we remain committed to continuing that track record of success.”
Lance added technology and innovation would continue to relaunch the business.
“The industry is starting to embrace big data analytics,” he said.
Even though big data has been around for a while, the industry is heavily relying on large quantities of data to make technical decisions on assets that lie below the surface to improve proficiency and time.
Borehole instrumentation of the drill string, a technique ConocoPhillips uses, allows operations to capture real-time feed information on the rig floor so drillers can optimize how fast they drill.
“Big data will help us attack these unconventional plays,” he remarked, “by helping us improve production by 6-8 percent.”
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