ConocoPhillips takes a new approach to growth

BY ROD WALTON World Staff Writer
Friday, September 14, 2012
9/14/12 at 4:18 AM

BARTLESVILLE - ConocoPhillips CEO Ryan Lance sees his job as captaining a really big ship through some fast-moving waters, carefully but resolutely changing directions.

"We're not trying to take a supertanker and turn it over," Lance, motioning his hands at a 90-degree angle to indicate an abrupt change, told a Thursday brunch crowd at the Bartlesville Community Center. "We're going to chart a course down the middle."

The separation of integrated oil and gas giant ConocoPhillips into two independent companies earlier this year was the apex of a long-term repositioning started out of the wreckage of the financial crisis four years ago. The other half of that separation, Phillips 66, is now one of the nation's largest refining, marketing, midstream and chemical firms.

The new ConocoPhillips is clearly the largest independent - purely focused on exploration and production - in the U.S., averaging 1.5 million barrels of oil equivalent per day. The five-year focus, Lance told the Bartlesville Area Chamber of Commerce forum, will be to grow 3 to 5 percent annually up to 1.8 million BOEs daily.

The growth will be mainly domestic in unconventional oil and gas plays such as the Eagle Ford and Bakken shales. ConocoPhillips has bought about 700,000 acres since the end of 2011.

"We're going to grow through the drill bit," he predicted. "We're going to try to grow organically."

Organic growth is something new. The former ConocoPhillips, forged out of the 2002 merger between Bartlesville-based Phillips Petroleum Co. and Houston's Conoco Inc., previously expanded mainly via acquisitions such as the Burlington deal several years ago. ConocoPhillips moved its corporate center to Houston but still employs nearly 2,000 people at the support facilities in Bartlesville.

Lance is one of few ConocoPhillips executives who never spent time working in Bartlesville, unlike his successor Jim Mulva and Phillips 66 CEO Greg Garland, who spoke to the chamber forum only two days earlier. He was adamant, however, about how smooth the separation worked locally and how important Bartlesville is as a support function for the company.

"It's gone remarkably well," Lance said, adding that once the dust settled from the separation everyone from royalty owners to employees still managed to get paid. "We didn't turn over any large rocks here."

ConocoPhillips will be a much different company over the coming years, he promised. In addition to the growth plans, some 20 to 25 percent of cashflow is committed for payout to shareholders as dividends.

Some analysts may doubt those dual purposes, Lance conceded. ConocoPhillips has a $6 billion cash balance and about $23 billion in debt, according to its most recent quarterly return.

But the shale plays nationwide are game changers and ConocoPhillips will move faster as an independent producer, the CEO added.

"We're going to start the new standard for independents," Lance said. "We're quietly becoming one of the biggest players in these unconventional spaces in North America."

He pointed out the irony that analysts complained about too many North American assets three years ago and now, due to the shale revolution, consider ConocoPhillips "well positioned" in this area. The newly independent company will stay diversified with production in heavy oils, domestic sweet crude, natural gas liquids and natural gas.

Asked to predict the long-term future of gasoline prices, Lance said oil should hover in the range of $80 to $90 per barrel domestically. The discount to international London Brent crude should dissipate, especially if and when the Keystone XL pipeline from Canada to the Gulf Coast is approved and completed.

"It just makes sense to get some of this crude from our neighbor to the north," he said.

And while domestic producers are excited about the new plays such as the Bakken, Eagle Ford and Oklahoma's own Anadarko Basin and Mississippian, Lance doesn't see a long-term benefit in trying to achieve complete independence from imported oil. In fact, the goal is a balance and in getting the lower-cost product available, in his opinion.

"I'm not sure if that's a good hurdle," he said. "You want to stay globally interconnected."

ConocoPhillips employs 16,000 people around the world. The visits by Lance and Garland continued a tradition started by former CEO Jim Mulva after the 2002 merger moved executives to Houston.

"It's a great annual tradition for Bartlesville," Byron Boles, chairman of Bartlesville Area Chamber of Commerce, said during the forum.

Original Print Headline: Taking a new approach

Rod Walton 918-581-8457
rod.walton@tulsaworld.com

Associated Images:

Ryan Lance, chairman and CEO of ConocoPhillips, speaks at the Bartlesville Regional Chamber of Commerce forum on Thursday. MIKE SIMONS/Tulsa World

Ryan Lance (second from left), chairman and CEO of ConocoPhillips, talks with Ed Gordon (left), Mark Headley and Mike Ferrow before speaking at the Bartlesville Regional Chamber of Commerce forum on Thursday. MIKE SIMONS/Tulsa World