ConocoPhillips says larger Permian projects in H2 could 'bump up' basin output in 2024

ConocoPhillips planned flat activity for the Permian Basin during 2024 for both rigs and well completion crews, but some new large projects and increasingly long laterals coming online there could cause output to "bump up" on a quarterly basis, the company's top executives said May 2.

ConocoPhillips' production from the Permian averaged 736,000 b/d of equivalent oil in the first quarter of 2024, up about 6% year on year, or up 3% adjusted for the headwind of weather downtime that took its Lower 48 production down about 25,000 boe/d in the period.

"Overall for the Permian, we're very focused on just driving efficient operations," Nick Olds, executive vice-president for Lower 48, said. "We've got flat activity with rigs and frac crews. So we may bump up quarter-to-quarter."

Olds said the year's first half of ConocoPhillips' Permian development plan is focused in the less-oily Delaware Basin or the western portion of the basin, followed by a pivot to the oilier Midland Basin or eastern portion in the second half of the year.

The company has some of its larger "pad" or batched-well development projects and some three-mile laterals -- the horizontal well legs -- coming online from the Midland in the second half of the year, which could make 2024 production uneven, he said.

Olds said ConocoPhillips teams are focused on 2- to 3-mile lateral development in the Permian, with 80% of its Permian laterals 1.5 miles or longer and 60% of laterals 2 miles or greater. And for 2024, about 20% of its wells planned are 3 miles long.

Longer laterals improve cost of supply

"We see up to 30% to 40% improvement on cost of supply when you move from a one-mile lateral to a three-mile lateral," Olds said.

Various companies in the industry were also experimenting with four-mile laterals.

ConocoPhillips produced 1.902 million boe/d in the first quarter company-wide, up 6% but only up 2% adjusting for dispositions and acquisitions. Lower 48 production totaled 1.046 million, flat with the 1.036 million produced in the first quarter of 2023.

Apart from its Permian production, the company produced 197,000 boe/d from the Eagle Ford Shale and 96,000 boe/d from the Bakken Shale in the first quarter, compared to 227,000 boe/d and 98,000 boe/d a year prior.

The company maintains its full-year production outlook of 1.91 million to 1.95 million boe/d, which translates to 2%-4% underlying growth, ConocoPhillips' Chief Financial Officer Bill Bullock said.

'Very supportive' of Permian offtake capacity

As for Permian natural gas, Bullock said the company ships to multiple markets via leased transport capacity to both the Gulf Coast and the West Coast, and is "very supportive" of offtake capacity from the Permian.

ConocoPihllips has some firm capacity on the upcoming 2 Bcf/d Matterhorn Pipeline from West Texas into the Houston area that should start up later this year, but Bullock added a "sizable" portion of its Permian gas volume is also exposed to in-basin pricing, although he declined to say how much.

As for global gas, ConocoPhillips CEO Ryan Lance said the company began the process of revitalizing its LNG exposure a few years ago, having first began LNG exports of Cook Inlet gas from Alaska to Asia in 1969.

"It's a long-term business that we're interested in," Lance said. "[We are] trying to grow that integrated business. Even at ... the lower Henry Hub prices you see today, the arb is still open to make money and make a decent rate of return as you move some of that LNG to Europe and to Asia."

In 2022 the company increased ownership in the Australia-Pacific LNG project and participated in two Qatar expansion projects. On the offtake side, it has also secured 7.4 million mt/year in various export projects -- including Port Arthur LNG in Texas, in which it has a 30% equity stake -- and has also on offtake on Mexico's west coast from the Saguaro LNG project, which is pending final approval. On the regas side, the company has 4.5 mt/year secured in Europe, including from German and Dutch projects.

In the near term, the company's focus is on continuing to layer in regasification opportunities, Andy O'Brien, ConocoPhillips' senior vice president of strategy, commercial, sustainability and technology, said.

"...over the longer term, maybe think about 10 to 15 mt/year as a good range of offtake capacity to think about," O'Brien said. "This will allow us to achieve the full benefits of scale across our organization."

O'Brien added the company's longer-term goal is clearly offtake, not equity project stakes.

"We don't feel we have to take on additional liquefaction capital," he said. "For competitive reasons, we don't get into the specifics of where we're actually developing offtake in regas right now. But needless to say, that's something that's front of mind for us."