US independents pivot to conventional growth

Some large US independent exploration and production companies are refocusing on their conventional asset portfolios as they look to restructure shale operations to drive down costs.

Occidental, Anadarko, Apache and their peers have large conventional assets, which have always provided stable, low-cost supply, enabling them to cope with the market downturn in 2014-16 through budget freezes. US shale will still provide the lion's share of the independents' future output growth. But the firms look ready to build their conventional business again to balance operations and create a pipeline of projects that offer high-return, longer-term output with far slower decline rates than unconventional wells.

Occidental has acquired three new blocks in Oman, which will more than double its acreage in the country to 24,300km². The addition of Blocks 51 and 65 in north Oman expands the firm's contiguous acreage by 362km, allowing it to use existing infrastructure to explore, appraise and develop the area. The new blocks double Oxy's potential well inventory to 10,000. And the capture of Block 72 in central Oman offers the firm the opportunity to expand from its adjacent Mukhaizna development. Oxy plans to start exploration work next year.

The company's debottlenecking of its Al Hosn gas processing plant in Abu Dhabi has also helped it to raise output there by 11pc to 83,000 b/d of oil equivalent (boe/d). Oxy also plans to expand production at fields it operates in Colombia. These developments, along with its huge US onshore portfolio in the Permian basin, allow the firm to forecast output growth of 5-8pc/yr to 2022, at an average capital expenditure (capex) of $5bn-$5.3bn/yr. "I feel a lot better today than I have ever felt about where we are with respect to organic growth prospects and the ability to grow the cash flow," chief executive Vicki Hollub said.

Apache's non-US output fell by 12pc from a year earlier to just over 128,000 boe/d in the third quarter as a result of field declines. But the company forecasts an increase to 133,000 boe/d in the fourth quarter, driven by output gains in Egypt and the UK North Sea. Production in the latter is expected to rise in the fourth quarter and next year after the company brought its fourth development well on line in the Callater field in September.

Forte Apache

Apache also made the Garten discovery in the UK North Sea this year and plans to accelerate work there in 2019. "The international portfolio has provided a tremendous amount of cash flow — it is Brent pricing and we get really high gas prices in the UK as well," Apache chief financial officer Stephen Riney says.

In Egypt, Apache has acquired seismic data on over 4,000km² from a planned 10,500km² survey. And it has initiated the next phase of a program to develop its new northwest Razzak concession in the country. Apache plans to maintain investment in Egypt to keep output steady there in the coming years.

Anadarko is advancing its 12.9mn t/yr Mozambique LNG project by converting initial sale agreements to binding offtake contracts, helping it move closer to a final investment decision, which it says is on track for the first half of 2019. In Algeria, it is in discussions to renew licenses for key production sharing contracts at the Ourhoud and El Merk fields, which are strong sources of free cash flow. Hess is similarly relying on its projects in Malaysia and the deepwater US Gulf of Mexico "as our cash engines", as its offshore Guyana project alongside operator ExxonMobil heads for completion, chief executive John Hess says.

But ConocoPhillips' upstream focus is firmly on US shale, following a restructuring last year and the start-up of its 9mn t/yr Australia Pacific LNG plant in 2016. The firm is in talks with the UK's Ineos over the sale of its North Sea assets.