ConocoPhillips is considering increasing its oil and gas production as economies around the world are reopening and prices appear to have rebounded.
The Houston oil major — which in May and June shut down a third of its production, about 400,000 barrels of oil per day — said energy companies are starting to think about lifting self-imposed production caps as crude prices have climbed back to near $40 a barrel. West Texas Intermediate crude, the U.S. benchmark, was trading Tuesday morning around $38 per barrel.
“We’re thinking of slowly coming back into the market over the next few months and reducing the amount we’ve got curtailed because we’re seeing some strengthening in the price,” CEO Ryan Lance said in an interview published Tuesday by industry research firm IHS Markit.
ConocoPhillips joins several energy companies looking to restart wells and increase production as coronavirus-related restrictions ease around the globe. Concho Energy and Parsley Energy are reopening existing wells while EOG resources said it plans to increase production capacity in the third quarter.
Lance, in a wide-ranging interview with IHS Markit vice chairman Daniel Yergin, said he’s worried that oil prices could take a double dip if OPEC and Russia decide to suspend agreements on production cuts that have been extended through July. In addition, Lance said oil-field service companies, which ConocoPhillips contracts to drill wells and extract oil, will take time to recover from the latest oil bust having laid off thousands of workers.
Lance, however, said he is not worried about bringing wells back into operation despite some industry concern that wells could be damaged if they are closed, or shut-in, for several months or longer.
“Pressure is equilibrating around the wellbore so when you open it back up, you do see flush production come back,” Lance said. It takes time to produce all those deferred barrels, but presumably, you’re producing them in a much higher commodity price environment.”
RELATED: ConocoPhillips cuts production as it posts loss, falling revenues
The energy industry, Lance said, had never before experienced the sudden drop in demand for petroleum products, such as gasoline, diesel and jet fuel. The subsequent oil crash has forced energy companies, including ConocoPhillips, to shut in thousands of wells, and raised questions about the future of shale drilling, which propelled the U.S. into the world’s top oil producer and ushered in a decade of growth in Houston.
Lance said he still believes in the viability of shale oil production, but acknowledged energy companies must focus more on delivering a higher return on investment for shareholders, many of whom have soured on the energy sector.
“Shale's not broke, shale’s not gone, shale will come back,” Lance said. “But I do think it comes back slower because there is going to be pressure on companies to confine their capital program and maybe not grow as dramatically as before, because I don’t think the access to capital and investor community is going to be as robust as it was over the past decade.”
Oil and gas producers must live within their means, and offer more dividend and “shareholder-friendly decisions” to woo investors back into the energy sector, Lance said. The CEO acknowledged that Wall Street has lost money investing in energy over the past decade, and that energy companies will have to focus less on growth and more on returning capital to shareholders.
ConocoPhillips lost $1.7 billion in the first quarter compared with a $1.8 billion profit during the same period a year ago. Revenue fell by more than half to $4.8 billion from $10.1 billion in the first quarter of 2019.
Ultimately, Lance said it’s difficult to say whether U.S. oil production will recover to the record levels seen before the coronavirus-driven oil crash. U.S. crude production hit a record 13 million barrels per day in February, before the virus wiped away 2 million barrels of day of production.
“It would be pretty difficult for us to return to 13 million barrels a day,” Lance said. “We’ll get back above 10 million, above 11 million, maybe encroaching on 12 million, but a lot of that depends on the shape of the recovery.”
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