CORRECT: Hit By Econ, Conoco Cuts Production Growth Outlook To Zero
March 11 2009 - 4:21PM
Dow Jones News
After slashing its payroll and immediate capital investment
plans, ConocoPhillips (COP) said Wednesday it doesn't expect to
increase production in the near future.
Speaking to journalists after the company's annual analyst
meeting in New York, ConocoPhillips Chief Executive Jim Mulva said
the company would have flat production for the "next several
years," holding at 1.8 million barrels of oil equivalent a day, a
figure that includes natural gas production.
The forecast marks a departure from last year's outlook, which
projected a 2% annual increase in production over the next five
years. At current prices, spending to achieve that target doesn't
make sense, Mulva said.
Houston-based ConocoPhillips said it is delaying some oil and
gas projects in North America, and confirmed it is cutting 1,300
workers, or about 4% of its staff.
The company's grim long-term production outlook shows that the
recession and global financial crisis are taking a heavier toll on
ConocoPhillips than on its peers.
Although Chevron Corp. (CVX) lowered its production growth
outlook on Tuesday as a result of lower investment on existing
production areas, Conoco is the first among U.S. major oil
companies to announce its long-term production won't grow.
Conoco's production forecast also highlights the company's
struggle to manage the expectations of analysts, who are becoming
disappointed with Conoco's performance.
ConocoPhillips faces the challenge of "underpromising and
overdelivering or disappointing everybody," said Phil Weiss, an
analyst at Argus Research in New York. Some analysts also warned
that the company's production average for the next five years may
actually shrink.
Tight Cash Flow
ConocoPhillips reaffirmed that it is cutting its 2009 capital
budget to $12.5 billion, an 37% reduction from 2008.
In the same meeting, ConocoPhillips Chief Financial Officer Sig
Cornelius said the company needs oil prices to average $52 a barrel
and natural gas prices to average $6 per million British Thermal
Units to break even at its current projection for spending and
dividend payments.
If oil prices average $40 a barrel, ConocoPhillips could
experience a cash flow shortfall of nearly $3 billion this year
under its current budget and force the company to borrow money or
cut its capital expenditure program further, he said.
"We believe we do have flexibility to make further capital
reductions if necessary," ConocoPhillips Chief Financial Officer
Sig Cornelius said. "Our debt may creep up if facing that
scenario." He added, however, that reducing the company's dividend
isn't under consideration.
Company executives made it clear that acquisitions aren't part
of the company's current strategy and that future investments are
based on "modest" oil prices. Mulva said he sees oil prices
stabilizing around $60 to $70 a barrel in the long term.
"We wish market price was a little stronger, to increase
dividends, get back in share repurchases programs, but the market
doesn't allow us to do all that," Mulva said.
He said the company's priority, over any potential acquisition,
is to bring down debt.
ConocoPhillips will defer work on some oil and gas projects this
year because low energy prices have made certain projects
uneconomical. The most likely targets for delays involve oil sands
and natural gas fields in Canada. Major projects due for startup
this year will move forward as previously scheduled.
Conoco recently traded at 35 cents a share, down 0.95% at
$37.65.
-By Isabel Ordonez and Brian Baskin, Dow Jones Newswires;
713-547-9207; isabel.ordonez@dowjones.com