Ryan Lance, chairman and CEO of ConocoPhillips, pictured at the 2023 CERAWeek by S&P Global conference. (Source: CERAWeek by S&P Global)
ConocoPhillips is seeing notable gains from its huge shale footprint across the Lower 48 and Canada.
The U.S. super-independent producer reported increased production across its multi-basin portfolio in the Permian, Eagle Ford, Bakken and Canada’s Montney Shale, ConocoPhillips reported in second-quarter earnings on Aug. 1.
ConocoPhillips saw its largest percentage increase in Eagle Ford Shale output. The South Texas play’s volumes averaged 238,000 boe/d, up more than 20% from 197,000 boe/d during the first quarter.
Conoco attributed to the hike in Eagle Ford volumes to a flurry of new wells placed online during the first and second quarters.
Conoco took an operational frac gap in the Eagle Ford during the back half of 2023 but later reinstated a frac crew, company executives said during an Aug. 1 call with analysts.
In the prolific Permian Basin—the top oil-producing region in the U.S.—ConocoPhillips averaged 748,000 boe/d, a 1.63% increase from the first quarter’s 736,000 boe/d.
In the Bakken, ConocoPhillips production averaged 105,000 boe/d during the second quarter, a 9% increase from 96,000 boe/d in the previous quarter.
Lower 48 production averaged 1.105 MMboe/d in the second quarter, up more than 5% from 1.046 MMboe/d in the first.
ConocoPhillips is also seeing gains across its Canadian operations, including the company’s Montney Shale unconventional asset in British Columbia and the Surmont oil sands development in Alberta.
Total Canadian output rose 3.5% to 176,000 boe/d during the second quarter. The boost in production can be attributed to new wells brought online in the Montney and Surmont plays, as well as ConocoPhillips’ acquisition of greater working interest in Surmont last year.
In October 2023, ConocoPhillips closed an acquisition of the remaining 50% working interest in Surmont from TotalEnergies EP Canada Ltd. for $3 billion in cash.
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Running a Marathon
ConocoPhillips stands to get a major boost in production across its Lower 48 footprint through a $17.1 billion acquisition of public rival Marathon Oil.
The transaction—valued at $22.5 billion, including approximately $5.4 billion of net debt—will consolidate massive swathes of acreage in the Eagle Ford, the Bakken and the Permian Basin.
ConocoPhillips continues working through the U.S. Federal Trade Commission’s (FTC) “second request” for additional information regarding the Marathon acquisition, CEO Ryan Lance said. Both companies received a second request from the FTC on July 11.
Marathon Oil’s shareholder vote on the merger is set for Aug. 29. The companies still expect to close late in the fourth quarter.
The combination might be most impactful in the Eagle Ford, where the combined E&P will have approximately 490,000 net acres and 400,000 boe/d of production.
Marathon’s Eagle Ford portfolio will add about 1,000 new locations for future drilling. The companies have also touted an even longer runway of refrac and re-completion projects in the play.
ConocoPhillips and Marathon also have highly contiguous footprints in the southern portion of the North Dakota Bakken play.
Marathon’s Permian portfolio is concentrated in the Delaware Basin of West Texas and New Mexico. ConocoPhillips got much deeper on the Midland side of the Permian through a $9.7 billion acquisition of Concho Resources in 2021.
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Gas macro
ConocoPhillips is bullish on long-term natural gas demand, and the company has a hand in developing the Port Arthur LNG facility and other international LNG projects.
However, the near-term environment and low commodity prices continue to challenge U.S. gas producers.
ConocoPhillips management expected second-quarter Lower 48 natural gas realizations to be low, CFO Bill Bullock said. That materialized into Waha hub spot prices in the Permian frequently dipping into negative territory due to record associated gas production and limited gas pipeline capacity.
ConocoPhillips shifts considerable gas volumes out of the Permian Basin toward Gulf Coast and West Coast markets—but a “sizable portion” of its gas production realizes in-basin pricing.
“The basin is pretty constrained right now, takeaway is fully utilized, outages are an issue and we would expect that trend to continue into the third quarter,” Bullock said.
There is some relief on the horizon, though: The Matterhorn Express pipeline, currently under construction, is expected to enter service later this year.
“We think that’s going to be really helpful for Permian Basin pricing as we look towards the end of the third quarter and into the fourth quarter,” Bullock said.
Further takeaway capacity is in the works. WhiteWater Midstream—the developer behind the Matterhorn pipeline project—reached a final investment decision on July 31 for a new Permian gas takeaway project, the Blackcomb Pipeline.
The 2.5 Bcf/d Blackcomb project aims to connect the Permian Basin to the Agua Dulce gas hub near Corpus Christi, Texas, by the second half of 2026.
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