ConocoPhillips Bets on Shale in Major U.S. Spending Shift

ConocoPhillips is making a massive wager on the future of shale drilling, pledging to spend 50 percent more over the next three years primarily in the U.S. and Canada after crude prices fell by more than half.

The third-largest U.S. oil producer plans expenditures of about $11.5 billion a year, according to a company presentation Wednesday. It will steer more funds to wells from Texas to North Dakota as spending winds down on major projects in locations such as Australia. ConocoPhillips set a goal of reducing costs by $1 billion by the end of 2016.

The Houston-based oil and natural gas producer, which spun off refining operations in 2012, also set a target of boosting production by 6.3 percent to 1.7 million barrels a day by 2017 amid the worst crude price crash in five years.

“We can win in a low price environment,” Chairman and Chief Executive Officer Ryan Lance told investors at the company’s analyst day presentation. “This is how to win in this kind of price war.”

The spending plan amounts to a vote of confidence in the future of North American oil as some have questioned the viability of prospects in Texas and Canada with crude trading at about $50 a barrel. The company’s operating costs are among the lowest in North America, Brian Youngberg, an analyst at Edward Jones in St. Louis, said in a telephone interview ahead of the company’s presentation.

Creating Niche

“ConocoPhillips has created a niche as a major independent producer with an attractive dividend and stable returns that trades more like” larger oil companies such as Exxon Mobil Corp., Youngberg said. Investors want to see the producer shore up its finances and spend in line with cash flow, he said.

Lance became one of the first CEOs among major energy companies to announce spending cuts amid oil’s fall, pledging to reduce total expenditures by more than $13 billion over three years or more than 30 percent.

ConocoPhillips can turn a profit on its U.S. and Canadian wells with prices of $50 a barrel or less, according to analyses by consultants ITG Investment Research, Wood Mackenzie Ltd. and Rystad Energy that were cited in the ConocoPhillips presentation. That’s among the lowest of about 20 peers, the presentation said.

The stock, which has slid 6.2 percent this year, fell 1.5 percent to $64.81 at the close in New York.

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