Conoco CEO Sees Ramping up Shale Rigs when Oil Price Recovers

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 (RYDAF) to acquire BG Group Plc (BRGXF) 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.