ConocoPhillips plans further capex reduction for deepwater exploration

ConocoPhillips reported plans to further reduce its capital expenditures for deepwater exploration, with the “most significant reductions” coming from its operated program in the Gulf of Mexico. The company did not specify by how much capex would be decreased, however.

At yearend 2014, the Houston-based independent slashed its 2015 capital budget by 20% to $13.5 billion compared with 2014’s capex plans (OGJ Online, Dec. 8, 2014).

“Since the start of the oil and gas price downturn last year, we have moved decisively to position ConocoPhillips for lower, more volatile prices by exercising capital flexibility and reducing operating costs across our business,” said Chairman and Chief Executive Officer Ryan Lance.

The company has provided notice that it will terminate its contract for the Ensco DS-9 deepwater drillship, which was slated for delivery to the gulf late this year to start drilling the company’s operated deepwater inventory under a 3-year contract.

Under the terms of that contract, ConocoPhillips is subject to a termination fee that represents up to 2 years of contract day rates. Details of the termination are under discussion, the company said, but it expects to take a special item charge for termination in the third quarter.

“Our actions reflect a decision to reduce exposure to programs with greater resource risk and longer cycle times. However, we will continue to pursue organic growth through more focused exploration programs,” Lance said. With this increased “capital flexibility,” he said, the company “can direct more investment to our captured resource base of 44 billion boe, which includes significant identified inventory in the highest value areas of the Eagle Ford, Bakken, Permian, and Western Canada unconventional plays, as well as our legacy businesses around the world.”

The company said it would discuss this announcement “in more detail” during its second-quarter earnings conference call scheduled for July 30.