ConocoPhillips trims 2017 budget as cost cuts offsets cheap oil

A ConocoPhillips refinery in Wilmington, California.
Jonathan Alcorn | Bloomberg | Getty Images

ConocoPhillips, the largest U.S. independent oil producer, will sell up to $8 billion in natural gas assets and trim its capital budget by 4 percent next year to provide funds to bolster operations, it said on Thursday.

The moves highlight not only the energy industry's increasing push for efficiency gains that reduce the cost of drawing oil and natural gas from the earth but also low commodity prices, which have hampered Conoco and its peers over the past two years.

Shares of the Houston-based company were up 1 percent at $46.20 in premarket trading. They had fallen about 2 percent this year.

The asset sale alone reflects a bold move by Chief Executive Ryan Lance to reduce the company's $28.7 billion debt load.

Conoco plans to sell $5 billion to $8 billion in North American natural gas assets, a divestiture that is massive in its size and scope. For example, Chesapeake Energy Corp, the second-largest U.S. natural gas producer, has a $5 billion market valuation.

The spending reduction comes after Conoco more than halved its budget last year. Indeed, its 2015 capex had eclipsed $10 billion.

"We've reset virtually every aspect of the business — our capital program, our cost structure and our portfolio — during the recent industry downturn," Lance said in a statement.

Lance said the spending cuts, asset sales and other steps should help the company be profitable with Brent oil prices of $50 per barrel. Brent traded at $46.18 on Thursday.

Most of the budget next year will be spent on shale projects in the contiguous United States, with some focus on Alaska and Europe, as well as maintenance of existing operations.

The spending should result in 2017 production of 1.54 million to 1.57 million barrels of oil equivalent per day, which would be a slight increase from estimated 2016 output, executives said.

The company also announced a $3 billion share repurchase program. It was not immediately clear when the buybacks would start.

Analysts at Tudor, Pickering & Holt said they had expected less focus on buybacks and more on dividend increases, but would wait for more details when Conoco hosts analysts and investors on Thursday morning at a presentation in New York.