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Bears Are Back In The Oil Market

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In the midst of an…

ConocoPhillips Sets Price Ceiling For New Projects

Conoco offshore rig

ConocoPhillips will only invest in new projects that can be profitable at an oil price of below US$50 a barrel, CEO Ryan Lance told the FT, adding that the company will continue to focus increasingly on U.S. shale despite skepticism about its growth potential among analysts.

Conoco believes that in addition to operational efficiencies that have been improving in the shale patch over the last few years, shale is more resilient to oil price swings than other segments of the industry. That’s despite the inability of a lot of shale boomers to cover their drilling costs and expand without taking on more debt.

Conoco, which recently reported it had returned to black in the third quarter of the year, posting a profit that beat analyst estimates, will now focus more on shareholder returns than on growth. The company has already started buying back shares it issued during the crash to keep going and will keep the buyback program in place until 2020. The program will cost it US$7.5 billion.

Investment-wise, the US$50 per-barrel ceiling is not even the most ambitious profitability level for new projects. Said Lance, “You don’t even get through the door unless you are below $50 cost of supply, and you don’t really get to the table in the capital allocation fight unless you are $40 a barrel or below.”

Related: Can Oil Majors Continue To Beat Estimates?

What’s more, this cost of supply includes everything from drilling rights acquisition costs to corporate overheads, the latter often excluded by U.S. E&Ps when they report on their supply costs, the FT notes.

Earlier this month Lance said Conoco planned to increase its capital spending allocation for the next three years to US$5.5 billion a year, or a billion dollars more than the capital spending program for 2017, which was cut twice from its initial size.

By Irina Slav for Oilprice.com

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