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Conoco (COP) Releases 2019 Capital Budget & Operation Plan

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ConocoPhillips’ (COP - Free Report) capital expenditure budget for 2019 of $6.1 billion is unchanged from the estimated capital expenditures for 2018.

Total budget allocated to the Lower 48, Alaska, Canada, Europe and North Africa, Asia Pacific and Middle East as well as Others regions is about 51%, 20%, 8%, 11%, 8% and 2%, respectively.

About $3.1 billion will be invested in Lower 48 in 2019, flat from 2018 levels. The amount will be used to operate 10-11 rigs across the Eagle Ford, Bakken and Delaware (Big 3) unconventional plays. Provisions have also been made to carry out multi-well pilots of new completion designs that are expected to boost future resource and are relevant for other unconventional plays. Additionally, investments will be made for exploration and appraisal in areas such as the Louisiana Austin Chalk play as well as base maintenance and conventional drilling across Lower 48.

Alaska has been allocated about $1.2 billion, up 33.3% from $0.9 billion in 2018. The upside can be attributed to higher activity and higher working interest in existing fields including the recently approved GMT-2.Exploration activities for evaluating the successful Willow discovery will be offset by the roll-off of spending on GMT-1. The budget also includes an amount for the earlier announced Kuparuk transaction, which is expected to close by the end of 2018

About $0.5 billion or about 8% has been allocated to Canada, up from about $0.3 billion in 2018. The increase was led by ongoing appraisal and development activity in the Montney unconventional program, in which ConocoPhillips considerably raised 100% owned and operated position in the liquids-rich window of the play in 2018. Operations are currently underway to drill a multi-well pad and install processing capacity to evaluate this position. The upside also includes Surmont upgrades to boost diluent flexibility and improve profitability.

Europe and North Africa have been apportioned about $0.7 billion, or about 11% compared with expected amount of $0.9 billion in 2018. The cutback reflects the earlier announced disposition of partial interest in the Clair field in the United Kingdom, which is likely to close by the end of 2018. North Sea plans include further development in the United Kingdom and Norwegian sectors.

Asia Pacific and Middle East have been allocated about $0.5 billion or about 8%, up fromestimated$0.7 billion in 2018. In the region, ConocoPhillips is progressing with plans to backfill the Darwin natural gas liquefaction plant through development of the Barossa offshore producing field as well as development projects in China, Malaysia and Indonesia.

About $0.1 billion or about 2%has been allocated to other activities in 2019, including corporate programs, up from $0.2 billion estimated expenditures in 2018.

In 2019, ConocoPhillips expects production between 1,300 thousand barrels of oil equivalent per day (MBOED) to 1,350 MBOED. This excludes Libya and does not reflect potential impacts from probable dispositions in 2019 or mandated production cut at Surmont. The projection represents 5% production growth on a pro-forma basis. In 2019, production growth is anticipated on the back of consistent ramp up of unconventional production in the Lower 48 and conventional production increases in Alaska.

In 2019, ConocoPhillips anticipates to boost payout to shareholders to more than 30% of cash from operations from 20-30%. The share repurchases are estimated at $3 billion, representing a payout to shareholders, including dividends, of about 50% of cash from operations. Moreover, at 2018 end, resource base is expected at 16 billion BOE at less than $40 per barrel WTI cost of supply.

The 2019 production views were released amid oversupply in the global oil markets. This compelled producer group OPEC and other key exporters to agree on reducing crude output from January. However, ConocoPhillips along with Hess Corporation (HES - Free Report) and Chevron Corporation (CVX - Free Report) have increased their production estimates for 2019. The companies intend to focus on implementing a consistent, balanced capital program that delivers predictable performance from its base business as well as early-stage investments. This will ensure prospects that can add low cost of supply inventory and boost sustained returns in the future.

Zacks Rank & Other Key Picks

Currently, ConocoPhillips sports a Zacks Rank #1 (Strong Buy).

Another player in the same sector is Cabot Oil & Gas Corporation , sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Cabot is an independent oil and gas exploration company with producing properties mainly in the continental U.S. The company delivered an average negative earnings surprise of 5.7% in the last four quarters.

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