Index > Authors> BGPMultiClient> ConocoPhillips Next To Try Its Luck In Alaska

ConocoPhillips Next To Try Its Luck In Alaska

In accordance with the US Bureau of Land Management’s plan for 2015, oil player ConocoPhillips (NYSE:COP) has put forth high bids worth up to $788,680 for six tracts, in relation to the National Petroleum Reserve in Alaska (NPR-A) lease deal. Furthermore, it also bid $409,011 for three North Slope tracts at the Alaska Oil and Gas Division's lease deal.

It seems that the Alaskan front has turned into the new drilling hotspot. The region gained heightened exposure after the great 1989 Exxon Valdez spill pumped 11 to 38 million gallons of US crude oil into Alaskan waters. While over the years many companies have been enticed by Alaska’s vast, untouched reserves, seldom have dared to try and venture in.

Recently, Royal Dutch Shell plc (NYSE:RDSA) quit its $7 billion Arctic operation after the first well yielded dismal returns. Other companies including ExxonMobil have wrapped up plans for Arctic drilling due to sanctions, while Chevron has postponed them for a market environment with more favorable oil prices.

In the third quarter in 2015, daily output averaged at 1.554 million barrels of oil equivalent (MMBOE). The organization is on track to convey normal yearly production with a margin development of 3–5%, focusing specifically on fluid rich ventures, fundamentally in the U.S. and Canada. ConocoPhillips' liquid-rich ventures are beginning to progress in the Eagle Ford, Bakken and Permian plays.

Eagle Ford and Bakken in the Lower 48 oil sands, coupled with western Canada and APLNG, helped increase organic reserves by around 0.7 billion BOE in the last quarter. In the future, it is expected that these regions will help drive up the company’s yield.

In the long run, ConocoPhillips hopes to replace reserves and maintain the development of production. The company is positioned extremely well in the North American natural gas and crude oil sector. In the North Sea, it holds a legacy position and its access and exposure to accretive international markets has widened.

The organization expects lower working costs by 2016. After successfully delivering oil from Surmount 1 in September this year, the company is anticipating Surmount 2 and APLNG, coupled with advances in Foster Creek/Christina Lake to enhance production by 1% in 2016.

Reduced production may be driven by downtime in the fields, while projected growth will be lower than initially anticipated due to low output levels from Libya. ConocoPhillips reduced capital spending for 2015 to $13.5 billion, which is by a fifth in comparison to the same in 2014.

Like almost all other oil companies in the US industry right now, ConocoPhillips has lowered its capital spending guidance in lieu of the tragic 2015 oil trajectory in view of expectations of lower-than-anticipated oil prices.

With the success of the Phillips 66 spin-off, ConocoPhillips has moved its collective focus towards upstream operations. While the shift may decrease the volatility in its earnings, its exposure towards commodities and their prices will increase. Simultaneously, it will lose the opportunity to diversify, as such, opportunities will contract.

ConocoPhillips stays helpless against shaky developments in crude oil and natural gas prices. In addition, the macro market environment is also an uncontrollable factor for management, as any price instability is projected to negatively affect earnings in the future.

Until oil prices remain low, which they are expected to, ConocoPhillips will be experiencing some headwinds, as its business portfolio’s main focus is upstream, which makes it extremely vulnerable to commodity prices.

The oil player’s profit margins have been burdened as crude oil prices have tumbled consistently since June. ConocoPhillips' upstream division has mostly been unable to yield value for its portfolio.