Conoco CEO Sees Ramping Up Rigs When Oil Price Recovers

Conoco CEO Sees Ramping Up Rigs When Oil Price Recovers
ConocoPhillips plans to add drilling rigs in 2017 in key US shale acreage based on its expectations for a crude price recovery, Ryan Lance says.


HOUSTON, April 8 (Reuters) - ConocoPhillips, the largest independent producer of oil and natural gas, plans to add drilling rigs in 2017 in key U.S. shale acreage based on its expectations for a crude price recovery, the company's chief executive said on Wednesday.

Conoco, which slashed its capital spending plan nearly 30 percent to $11.5 billion this year, told investors it expects to increase the number of rigs in its Eagle Ford acreage in South Texas to 12 in 2017 from an average of seven this year.

In North Dakota's Bakken, the rig count will double to 10 over the same period.

The company's rig forecast is a strong sign that producers firmly believe in the long-term viability of drilling for shale oil, which has boomed over the last decade but been scaled back sharply since U.S. oil prices tumbled 50 percent since June to around $50 a barrel.

"While we've ramped down to adjust to current market conditions and lower commodity prices, our intention is to ramp back up with rig count in both those two plays," Conoco CEO Ryan Lance told a small group of reporters on a conference call.

Those shale projects have higher margins, a shorter cash cycle and provide higher returns, the executive said.

While a commodity price recovery is likely to be "volatile," Lance said the proposed $70 billion deal by Royal Dutch Shell to acquire BG Group Plc may signal the market has bottomed out as U.S. supply and demand return to balance.

"As refineries in the U.S. are coming back on, we'll get some of the inventories in Cushing worked off. We ought to see some recovery in price as the supply starts to react to the low price as well," he said.

On the cost side, Lance said Conoco expects to save as much as $1 billion in operating costs through 2016, a figure that likely could grow if U.S. onshore drilling costs keep falling.

(Reporting by Anna Driver; Editing by Terry Wade and Richard Chang)


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David Thompson  |  April 14, 2015
What are they thinking? Drill when drilling costs are down. Thats the way the people whove really made money in this industry have thought. Shut it in, produce just enough to hold and open things up when the price comes up. But drill while you can beat the contractors down, otherwise youre going to be drilling in an environment where everybody is going to be jacking up the price. This is the time to drill up all the development wells you have, not the wildcats, the ones you know are going to come in. Drill them cheap. Youll also keep at least some of the good crews. If drilling stays down for a year, well be training a whole new set of hands and it isnt going to be pretty. Its bad enough as it was, but this could get ugly. Youre going to lose all the younger mud engineers and be stuck with us dinosaurs. I may be 68, but I have no intention of retiring until the day that I cant stay up all night supervising a bunch of 20 year olds and that hasnt happened yet.