Shale Gas Boom: ConocoPhillips, An Underrated LNG Player?

| About: ConocoPhillips (COP)

This article is presenting one of the major energy company in the U.S. and how the natural gas boom of the last few years have changed its producing strategy (see the article here). After a brief presentation, we will look at some of its current operations worldwide, focusing on its natural gas and LNG (liquefied natural gas) plays. The last part will discuss about some of its major natural gas projects under way, the financial highlights of the company including its Q1 2013 highlights, as well as its future outlook, in a second article. Let's get started with the first part in this article beginning with the company's presentation.

The third-largest energy company in the U.S.

Headquartered in Houston, Texas, ConocoPhillips (NYSE:COP) has operations in almost 30 countries. Key focus areas include operating producing assets, developing its major projects and exploring for new resources in promising areas. The portfolio includes legacy assets in North America including its growing shale and oil sands businesses, Europe, Asia and Australia.

(Click to enlarge)

Source: ConocoPhillips

Furthermore, the company is developing few major international projects and a global exploration program. The company's production streams include light oil, heavy oil, oil sands, NGL (natural gas liquids), conventional natural gas, coalbed methane, shale gas and oil and LNG.

ConocoPhillips traces its beginnings to 1875, when Conoco founder Isaac E. Blake envisioned an idea to make kerosene available and affordable to townspeople in Ogden, Utah. Thirty years later, the foundation for Phillips Petroleum Company began when brothers Frank and L.E. Phillips hit the first of 81 wells without a dry hole. Nearly a century later, the two companies combined their strengths to form what is now the third-largest energy company in the U.S. The ConocoPhillips merger, completed during August 2002, paved the path for the company's current and future success.

In 2006, Burlington Resources joined ConocoPhillips. The acquisition brought Burlington's more than 100 years of experience to ConocoPhillips and enhanced the company's position as a leading producer and marketer of natural gas.

Best Natural Gas Worldwide Assets

Source: ConocoPhillips 2012 Annual Report


Prudhoe Bay

Source: ConocoPhillips

Prudhoe Bay also is the site of one of the largest waterflood and enhanced oil recovery projects in the world, as well as a large natural gas processing plant that processes more than 6.75Bcf/d (billion cubic feet per day) of natural gas that is reinjected into the reservoir. Prudhoe Bay also contains natural gas, and ConocoPhillips continues to work on opportunities to develop and monetize that resource.

North Cook Inlet

Source: ConocoPhillips

Owned and operated by COP at 100%, the field was discovered in the northern waters of Cook Inlet in 1962 and is produced from the Tyonek Platform which began operation in 1968. While natural gas production averaged nearly 34Mmcf/d (million cubic feet per day) in 2011, the company managed to increase its production for 2012 with 49Mmcf/d.

Beluga River

Source: Alaska Oil and Gas Conservation Commission

Part of the Cook Inlet Area, the Beluga River natural gas field serves major customers in south-central Alaska, including local utilities and industrial consumers. Beluga River is owned at 33.3% and operated by COP with co-venturers Hilcorp at 33.3% and Municipal Light and Power with 33.3%. Total production for 2012 averaged 55Mmcf/d.

Trans Alaska Pipeline System

Source: MATCOR

The 800-mile Trans Alaska Pipeline System is a joint-venture operated by Alyeska Pipeline Service Co. The co-venturers are BP (NYSE:BP) at 46.9%, ConocoPhillips at 28.3%, ExxonMobil (NYSE:XOM) with 20.3%, Koch Alaska Pipeline Co. with 3.1% and Chevron (NYSE:CVX) at 1.4%. The pipeline transports North Slope oil to the tanker terminal in the ice-free port of Valdez, Alaska. The pipeline carries approximately 600Mbd (thousand barrels per day) of crude oil and NGL.

Continental U.S.

Eagle Ford

(Click to enlarge)

Source: ConocoPhillips

The liquids-rich Eagle Ford shale trend in South Texas represents one of ConocoPhillips' most promising opportunities. With approximately 223,000 net leasehold acres in the area, the company accelerated its delineation activities during 2011. For 2012, production increased by 144% over 2011, with an average of 85Mboe/d (million barrels of oil equivalent) and a peak production of 103Mboe/d while running 11 operated drilling rigs.

Fort Worth Basin

(Click to enlarge)

Source: ConocoPhillips

With a significant working interest in about 147,000 net acres in north-central Texas, ConocoPhillips is able to strongly influence the pace of development in this basin. The company added 24 new wells in 2012. For 2012, production has averaged 49Mboe/d. The basin includes the liquids-rich North Barnett Trend.

Permian Basin

(Click to enlarge)

Source: ConocoPhillips

The Permian Basin in West Texas and southeastern New Mexico is a prime example of increasing existing company resources from legacy assets. COP continues to effectively optimize production from its 1.1-million-net-acre lease position. The company drilled 103 wells in 2011 and increased drilling activity in 2012, resulting in a production of an average of 111Mmcf/d. With resources of approximately 1Bboe (billion barrels of oil equivalent), the basin is expected to remain a high-liquids-production asset for years to come.

San Juan Basin

(Click to enlarge)

Source: ConocoPhillips

ConocoPhillips is the largest operator in the San Juan Basin, located in northwestern New Mexico and southwestern Colorado. The company has a significant number of productive leaseholds and mineral acreage in this area. To offset the natural decline rate, the company has an ongoing program of drilling new wells, performing workovers on existing wells, adding compression and installing artificial lift when economic to do so.

In 2011, net production from the Fruitland Coal Formation averaged 296Mmcf/d of natural gas and 3Mb/d of liquids. The Mesa Verde Formation, which consists of the Lewis Shale, Cliffhouse, Menefee and Point Lookout sands, is the largest producing tight-gas formation in the San Juan Basin. Net production from the conventional tight-gas producing formations averaged 477Mmcf/d of natural gas and 46Mbd of liquids in 2011. For 2012, San Juan produced in all, 750Mmcf/d of natural gas and 49Mb/d of liquids.

Texas and Oklahoma Panhandles

(Click to enlarge)

Source: ConocoPhillips

The company holds approximately 1.1 million net acres of development and exploration assets in this region. Producing wells are primarily shallow gas wells in the panhandles of Texas and Oklahoma.

Anadarko Basin

Located primarily in western Oklahoma, Anadarko encompasses 250,000 net acres and contains producing formations ranging in depth from 11,000 feet to more than 21,000 feet. ConocoPhillips has over 140,000 net acres in the Granite Wash Play in the Anadarko Basin. The industry has transitioned its development focus from vertical to horizontal wells, targeting the most prolific liquids-rich intervals. For 2012, Anadarko produced an average of 124Mmcf/d.

Wind River Basin

The Wind River Basin operations cover more than 1.1 million net acres in Wyoming with natural gas operations from multiple horizons ranging in depth from 5,000 feet to more than 25,000 feet, where the deep Madison Formation occurs. The company owns an approximate 46% working interest in the Lost Cabin Gas Plant and net revenue interests varying from 22% to 40% in the producing reservoirs. Wind River produced for 2012, an average of 78Mmcf/d.

Total production for the U.S excluding Alaska averaged 1,493Mmcf/d of natural gas in 2012.

Freeport LNG Terminal

(Click to enlarge)

Source: gCaptain

ConocoPhillips has a long-term agreement with Freeport LNG Development, L.P. to utilize 0.9Bcf/d of regasification capacity at Freeport's 1.5Bcf/d LNG receiving terminal in Quintana, Texas. The terminal became operational in 2008. In order to deliver natural gas from the Freeport Terminal to market, ConocoPhillips constructed a 32-mile, 42-inch pipeline from the terminal to a point near Iowa Colony, Texas. For more information on Freeport LNG, one of my article discuss about the top promising LNG investments here.

Golden Pass LNG Terminal

Source: Natural Gas Daily

ConocoPhillips has a 12.4% ownership interest in the Golden Pass LNG Terminal and affiliated Golden Pass Pipeline. It is located adjacent to the Sabine-Neches Industrial Ship Channel northwest of Sabine Pass, Texas. The terminal became commercially operational in May 2011. ConocoPhillips will hold terminal and pipeline capacity for the receipt, storage and re-gasification of LNG purchased from Qatargas 3 and the transportation of re-gasified LNG to major interstate and intrastate natural gas pipelines.

Phoenix Park Gas Processors Limited

Source: The Trinidad Guardian

ConocoPhillips owns a 39% interest in Phoenix Park Gas Processors Limited which processes natural gas in Trinidad and markets NGL in the Caribbean, Central America and the U.S. Gulf Coast. Its facilities include a 2Bcf/d gas processing plant and a 70Mb/d NGL fractionator. In 2011, ConocoPhillips' share of NGL extracted from this facility averaged 8Mb/d, while the company's share of fractionated liquids averaged 16Mb/d.

Wingate Fractionator

The Wingate Fractionator, located in Gallup, N.M., is 100% owned and operated by ConocoPhillips and has an inlet capacity of 25Mb/d.

Western Canada

(Click to enlarge)

Source: ConocoPhillips

ConocoPhillips is one of the top three natural gas producers in Canada. Its operations are located primarily in Alberta and British Columbia, with some production in Saskatchewan. The company has an ownership position in 80 natural gas processing plants in the region. The company holds leasehold rights in 8.8 million gross acres (6.1 million net acres) in western Canada.

Canada's Oil Sands

Source: ConocoPhillips

ConocoPhillips holds approximately 1 million net acres of land in the Athabasca Region of northeastern Alberta. The significant bitumen deposits on these lands are estimated to contain more than 15 billion net barrels of resources, making ConocoPhillips the holder of one of the largest land and resource positions in the region.

ConocoPhillips' bitumen resources in Canada are produced via SAGD technology. SAGD involves injection of steam into the reservoir, effectively liquefying the heavy bitumen, which then is recovered and pumped to the surface for further processing.

COP's net bitumen production from the FCCL Partnership (50% COP) and Surmont SAGD operations has grown by an average of 23% over the past three years to 67Mb/d in 2011, second among SAGD producers in Canada. The company has a number of ongoing development projects and further opportunities in these assets.

Net bitumen production is targeted to double by 2016, with a further doubling from 2016 to 2020, achieving a 17% compounded annual growth rate over the next 10 years. Additional opportunities in its portfolio have COP well-positioned to continue as a leading SAGD producer in Canada in the future. Total daily net production from COP in Canada averaged 928Mmcf/d in 2011, a decrease over 857Mmcf/d from last year.


(Click to enlarge)

Source: ConocoPhillips

Britannia, U.K.

Source: ConocoPhillips

Britannia is one of the largest natural gas and condensate fields in the North Sea. This joint-venture is operated by Britannia Operator Limited and is owned by ConocoPhillips at 58.7%, Chevron with 32.3% and BP with 9.0%.

Commercial production began in 1998. Condensate is delivered through the Forties Pipeline to the oil stabilization and processing plant, Kerse of Kinneil, near the Grangemouth Refinery in Scotland, and natural gas is transported through a dedicated Britannia pipeline to the Scottish Area Gas Evacuation (NASDAQ:SAGE) facility at St. Fergus, Scotland. Britannia's daily net production averaged in 2012, 117Mmcf/d of natural gas. Total daily net production from COP in U.K. averaged 463Mmcf/d in 2011 over 356Mmcf/d produced in 2012.


(Click to enlarge)

Source: ConocoPhillips

ConocoPhillips has had a presence in Indonesia for more than 40 years, operating six PSCs (production-sharing contracts). Three of the blocks are located offshore: the South Natuna Sea Block B PSC, the Kuma PSC and the Arafura Sea PSC. The three onshore PSCs are the Corridor Block PSC and the South Jambi 'B' PSC, both in South Sumatra, as well as the Warim PSC in Papua. Total daily net production from COP in Indonesia averaged 437Mmcf/d last year, a little decrease over 2011 with an average of 450Mmcf/d of natural gas produced.


Source: ConocoPhillips

In 2003, ConocoPhillips and Qatar Petroleum signed a Heads of Agreement to develop Qatargas 3, a large-scale LNG project in Ras Laffan Industrial City, Qatar. The integrated project comprises upstream natural gas production facilities to produce approximately 1.4Bcf/d of natural gas over the 25-year life of the project, as well as an initial average of about 70Mb/d of LNG and condensate combined from Qatar's North Field.

(Click to enlarge)

Source: ConocoPhillips

The project also includes a 7.8Mtpa (million tonnes per annum) LNG facility. The first LNG cargo was loaded in November 2010, and the Qatargas 3 Plant is now fully operational. The LNG is exported in carriers owned by Qatargas Transport Co. and time chartered to Qatargas 3. Peak production was achieved in 2011 and is expected to continue for the life of the project. Total daily net production from COP in Qatar for 2012 averaged 367Mmcf/d compared to 2011 with an average of 370Mmcf/d of produced gas.

This concludes the presentation of ConocoPhillips' current major assets worldwide in the natural gas play. Several other assets such as its plays in Norway, Malaysia, Australia or Nigeria could have been talked about. However, I tried to present the most prominent ones to give the investors a better idea of this company's involvement in natural gas play.

The last part will discuss about some of its major natural gas projects under way, the financial highlights of the company including Q1 2013 highlights, as well as its future outlook in a forthcoming article. Will ConocoPhillips will profit from the natural gas boom of recent years? Does the company represents a good investment by taking into consideration its current plays in the commodity? These are the questions I will try to answer.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Oil & Gas Drilling & Exploration
Problem with this article? Please tell us. Disagree with this article? .