ConocoPhillips COP has released its capital spending budget and operating plan for 2016.
The company’s 2016 capital budget of $7.7 billion is 25% below the expected 2015 capital spending and 55% lower than that of 2014. Of the total budget, about $1.2 billion or 16% is apportioned for base maintenance and corporate expenditures, $3.0 billion or 39% has been allocated for development drilling programs, $2.1 billion or 27% has been set aside for major projects. The remaining $1.4 billion or 18% is to be used for exploration and appraisal.
The majority of capital will be used for the development of U.S. oil fields, mainly shale formations in Texas and North Dakota, as well as for the Gulf of Mexico and Alaska. ConocoPhillips also intends to allot drilling capital to Malaysia, China, the North Sea and Canada.
The drastic fall in oil prices has hurt all segments of the economy including oil producers, rig owners and even steelmakers. The surplus of crude from the Middle East, Russia and the U.S. shale fields has resulted in a supply glut that lowered oil prices since mid-2014, thereby shrinking cash flow across the industry as well as prompting job cuts and project terminations. Under such circumstances, ConocoPhillips posted its sharpest quarterly loss since 2008 in the period ended Sep 30, 2015.
Per a statement issued by the company, it expects to divest assets worth $1.7 billion by the end of March. Most of the assets to be sold are gas fields. ConocoPhillips has already sold assets worth about $600 million during the first nine months of this year. Production from these assets accounts for over 70 thousand barrels of oil equivalent per day (MBOED) of 2015 production.
The company projects a production growth of 1–3% for 2016, excluding the impact of asset sales and supply disruptions in Libya. ConocoPhillips anticipates growth mainly from the start-up of an Australian gas-export project as well as continued ramp up of oil sands production in Canada and Alaska.
Operating costs for 2016 are projected at $7.7 billion compared with $10.5 billion in 2014. After adjustment of $0.8 billion for special items, operating costs are up by $2 billion as against $9.7 billion of adjusted operating costs for 2014. It is, however, $0.5 billion below the projected 2015 adjusted operating costs of $8.2 billion.
Currently, ConocoPhillips carries a Zacks Rank #3 (Hold). Some better-ranked players from the energy sector are Energy Transfer Equity, L.P. ETE, ReneSola Ltd. SOL and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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