Analysis: US producers divided on output strategy

OREANDA-NEWS. ConocoPhillips' decision to cut its spending by nearly 30pc through 2017 puts the world's largest independent oil and gas producer in a large group of peers that is mostly holding to growth targets in the midst of tumbling crude prices.

While most US oil and gas producers are paring spending plans, two clear camps are emerging on output targets. The first is keeping growth targets largely steady, and includes Devon Energy and Continental Resources as well as ConocoPhillips.

The second aims to slow production and wait out the downturn, and includes Anadarko, Chesapeake and EOG Resources.

"We now believe it is prudent to position the company for lower, more volatile prices for the foreseeable future," ConocoPhillips chief executive Ryan Lance said yesterday, after cutting capex to \$11.5bn a year through 2017 from the \$16bn level set earlier. ConocoPhillips held to its growth target of 2-3pc for this year, marginally lower than the 3pc it had forecast in December and the 4pc posted in 2014. It expects output to increase to 1.7mn b/d of oil equivalent (boe/d), excluding Libya in 2017. That compares to a first-quarter 2015 output target of 1.57mn-1.6mn boe/d announced in January.

Like ConocoPhillips, Devon plans to reduce capex by 20pc from a year earlier to an estimated \$4.1bn-4.5bn in 2015. But it expects to boost oil output by at least 20pc to 250,000-260,000 b/d as advancements in drilling and well design, lower costs and help extract more oil and gas from each new well. "Regardless of the commodity price environment, we will maintain our focus on the things we can control," chief operating officer David Hager said.

While not as aggressive as Devon, Continental Resources has set an output growth target of 16pc-20pc for 2015 compared with the 28pc posted in 2014.

But others like Anadarko are lowering output growth along with cuts to capex. Anadarko, which cut its 2015 capital spending plan by 33pc to \$5.4bn-5.8bn, expects total volume available for sale to be 808,000-826,000 boe/d compared with 843,000 boe/d last year. "We believe it is prudent to reduce capital investments and position the company for the future, rather than to pursue year-over-year growth," chief executive Al Walker said.

Chesapeake plans to cut capex by about 26pc to \$4bn-4.5bn in 2015. It is targeting 2015 output of 235mn–240mn boe, or an average of 645,000–655,000 boe/d, marking a 3pc–5pc increase over 2014 after accounting for asset sales. Output in 2014 grew 9pc.

EOG Resources, which will cut capex by 40pc to \$4.9bn-5.1bn in 2015, will complete 45pc fewer wells in 2015 versus 2014 and delay a "significant" number of completions. "We will be ready to respond swiftly when oil prices recover," chief executive Bill Thomas said. "The company is not interested in accelerating crude oil production in a low-price environment."

Similarly, Apache plans a 25pc cut in 2015 North America onshore spending to about \$4bn. It is targeting a North American onshore output increase of 1-3pc compared with 18pc in 2014. "We believe it more prudent to curtail our activity until costs are lower and prices recover," said chief executive John Christmann.

Occidental Petroleum, which cut its capex by 33pc to \$5.8bn in 2015, is putting the brakes on new field development. "It makes little sense for us to push production so as to sell our oil at \$50 or less," chief executive Stephen Chazen said. Marathon Oil expects total production growth of 5-7pc this year compared with 35pc in 2014 as the company made a second cut in its spending plan to \$3.5bn.

Overall, North American oil and gas producers will reduce capital spending by 41pc in 2015 as they cut drilling plans and focus on maximizing returns amid a near 60pc plunge in crude prices, Moody's Investors Service said.