Recently, I took a look at international projects that ConocoPhillips (NYSE:COP) is developing in order to mitigate the natural decline of its base assets. Despite spending $9 billion to add 170,000 barrels of oil equivalent per day, it is not enough to offset the decline of those assets. The good news is that Conoco’s development projects in the U.S. not only offset declines here in the states, but also offset the declines at its international operations. Let’s drill down into these projects and see how this is possible.
Even with spending $2.5 billion in its five-year plan, ConocoPhillips (NYSE:COP) can only mitigate its base decline by 3% per year. That’s actually not a bad decline rate, but it is something that the company will need to make up elsewhere if it plans on growing. Overall, the capital invested will offset about 35,000 barrels of oil equivalent per day of production by 2017. The good news is that the rest of its U.S. development capital is being invested to grow production above its decline rates.
Over the five-year development plan, ConocoPhillips (NYSE:COP) will spend about $3 billion on its million net acres in the Permian. By adding 40,000 barrels of oil equivalent per day of production, ConocoPhillips (NYSE:COP) will not only mitigate its base decline, but will see 7% compound annual production growth through 2017. Not only is production growing here, but its oil production will go from about 30% last year, to over 75% of production over the five-year plan. That’s a great showing, with the improvement in oil production the big key here.
With a five-year plan to spend about $4 billion, ConocoPhillips (NYSE:COP) has big plans for the Bakken. This capital will drive tremendous production growth of 45,000 barrels of oil equivalent per day, and will result in a compound annual production growth rate of 18% through 2017. Again, like the Permian, the production mix will increasingly be oil, with the production mix jumping from 20% oil last year, to a five-year average of more than 80%.
The Bakken is one of the premier oil-levered plays in the U.S. With 2012 production of less than 30,000 barrels of oil equivalent per day, Conoco is a smaller player. For perspective, its production in the play is a bit more than Kodiak Oil & Gas Corp (USA) (NYSE:KOG) , which should end this year at that rate. Even with all the growth, ConocoPhillips (NYSE:COP)’ projected 2017 production of more than 50,000 barrels of oil equivalent per day will be well short of current top dog Continental Resources, Inc. (NYSE:CLR) , which already sees production topping that mark. Still, the Bakken is a key resource to develop for the company, and this is money well spent.