A few bits from the Hess, Oxy, and Conoco conference calls last week

I scanned through these three conference calls from the past week.

Hess:

Cutting 2015 capex to $4.7b from 5.6b in 2014.  45% of which is unconventional on-shore US and the rest is offshore US and international.

Greg Hill, President and COO, stated: “We are reducing our 2015 spending in the Bakken to $1.8 billion, compared with $2.2 billion in 2014. In 2015, we plan to operate an average of 9.5 rigs and bring approximately 210 new operated wells online, compared with 17 rigs and 238 operated wells brought online in 2014.

“In the Utica, we plan to spend $290 million compared with approximately $500 million last year, as we transition to early development at a measured pace in this price environment and as infrastructure builds out. Over 2015 our joint venture with CONSOL intends to execute a two rig program focused in the core of the wet gas window and bring 25-30 new wells online, compared with four rigs and 39 new wells in 2014.

In their supplemental info they also show how well costs are down to $7.1mm from the quarter, down from $8.6mm in Q1 2013.  They expect to get cost reductions from suppliers.   800-900 mboed for IP30s- 175,000 mboed is their target for the bakken eventually.  So they are cutting the rig count by half and yet expect to drill only 12% fewer wells compared to last year in the bakken.  They also say they can keep production at least flat with this reduced rig count.  As I've said many times, there is unlikely to be a steep drop off in production in the US unless there is a much steeper sell off.

Also their cost reduction projections are quite modest.  They are more or less predicting that the current trend in cost reductions will persist.  I think this is incredibly conservative, and I believe cost reductions will accelerate rather significantly.  While these companies have been pursuing efficiencies by streamlining operations before, they will benefit in the year ahead from declines in service costs, and the almost complete elimination of drilling single-well pads to hold acreage by production.

The HES transcript was from seekingalpha.com.

Conoco Phillips

transcript:  http://www.conocophillips.com/investor-relations/Pages/default.aspx

Formerly the smallest of the majors, COP is now the biggest E&P after spinning off its refining unit Phillips66.  They are illustrative of what is wrong with the major companies.  They spent $17.1b in capex last year vs. 15,800 in cash flow from operations.  And with that out-spend in a very high priced environment they managed to only replace 97% of reserves, and grew production by 4%.  I haven’t looked to see if they did the old trick of replacing oil production with cheaper gas production and claiming to be replacing reserves and maintaining production.

They are planning to run 6 rigs in the Eagleford, 3 in the Bakken, and 4 in the Permian basin.“We are in the sweet spot of the Bakken. With the rig rates and the rates that we are getting, it's economic at current conditions, but we're actually taking it all the way down to three rigs this year. We do have some commitments within some of the units in the Bakken where we have to run some rigs in the Bakken. The Eagle Ford is still very economic, even at current prices. But having said that, it makes more economic sense to defer. So what we're dealing with in the Eagle Ford is a balance of -- we have some commitments. We need to run probably three rigs to meet commitments on our leasehold. And we're also keen to continue to learn on the Eagle Ford because we have a huge inventory there that we could develop over the next couple of decades. And we want to make sure that we're capturing all the learnings.”
 In response to another question:
“Well, Guy, I think you are really trying to focus in on the unconventionals in our portfolio. So to give you a sense of that, we expect our production from the Eagle Ford and Bakken will grow from about 200,000 barrels a day in 2014 to about 225,000 barrels a day in 2015. So somewhere between a 10% and a 15% increase. Now, that production growth is all going to come through the first half of the year. And then if we stay at the rig counts that we said just now, we're going into a slow decline in both the Bakken and the Eagle Ford, not a rapid decline but a slow decline. And that's going to continue into early 2016.”

So we are seeing some projections of declines at COP for domestic US production.  This is really the first time I'm seeing an E&P admit that their US production will decline, and they seem to indicate a peak production in mid-late 2015.  Although we should note, that they are still projecting higher domestic US production for year end 2015 compared to today.

Occidental Petroleum

These guys are the second largest US E&P after COP.  They replaced 174% of reserves in 2014.  They have a rock solid balance sheet with a net cash position.  Production was flat at 591,000 boed for 2014.  From an unconventional standpoint, they are mainly concentrating on the Permian, where their biggest unconventional acreage is.  They are seeing 750 mboe type-curves in the Wolfcamp, and 900 mboe in the Spraberry.  No big takeaways for me from this conference call, except that they are cutting capex from $8.9b in 2014 to 5.7b in 2015, and that they continue to see significant improvements in the Permian.