(WO) – ConocoPhillips Chairman and CEO Ryan Lance said his challenge in managing a major upstream operator is to continue to produce oil and gas efficiently, generate healthy dividends for shareholders, harness the benefits of digital transformation, and achieve ESG’s goals – all at same time. Lance updated the state of his company’s operations and efforts to connect things digitally during the Schlumberger Digital Forum 2022 in Lucerne, Switzerland, last week.
ConocoPhillips Chairman and CEO Ryan Lance spoke before the Schlumberger Digital Forum last week in Lucerne, Switzerland.
Lance noted that oil and gas are still two of the highest tech industries in business today (even if the public doesn’t always realize this). He noted that “the capabilities we have today were a dream just a few decades ago, which I helped (the forum attendees) to achieve.”
Some company stats. Taking a broad view of his company, Lance calls ConocoPhillips (COP) the world’s largest independent exploration and production company. The company is active in 13 countries and six regions around the world, including Alaska, Lower 48 USA, Canada, Europe, the Middle East, North Africa, Asia Pacific, and other internationals. “We are particularly strong in shale oil in North America,” the Chairman acknowledged. But then he delivered a surprising statistic. “We are growing in LNG. In fact, some of you don’t know this, we have the longest history in the industry as a company in both the Atlantic and Pacific LNG markets, and now we are involved in low-carbon opportunities.”
COP has 9,400 employees, more than 6 billion barrels of reserves, and more than 20 billion barrels of resources, with an average supply cost of less than $30 a barrel. “These resources also provide a much lower carbon density than other active energy sources, such as coal,” explains Lance. “Sure, these traits help us be resilient to the demands of the energy transition.”
COP installation in the Copark District of Alaska. Photo: ConocoPhillips.
Operating strategy. ConocoPhillips has accepted the fact that the company needs to do business in cycles that come and go like a roller coaster. “In my 10 years as CEO, we’ve had two major recessions and three fairly big upswings,” the chairman noted. “In my career, it’s been eight or nine of these types of cycles, and that volatility will continue. And that’s because the world is so closely balanced between supply and demand, even in the best of times we see today.”
Accordingly, the COP decided back in 2016 to accept the reality of such volatility. “You want to chase growth during upswings, only to have to scale back during downturns,” Lance analyzed. “Instead, we want to focus on a disciplined strategy of earning ground-breaking returns from peers during business cycles. That made quite a buzz, when we announced it, but now, a lot of the industry is doing the same. We’ve developed an approach to get around these realities, which is to deliver returns Ultra, following our winning value proposition to market.”
financial aspects. Lance said the COP’s financial side has some founding principles “we have to maintain a strong balance sheet,” he explained. We will make pilot distributions to our shareholders. We will make disciplined investments, and we will achieve excellence in our environmental, social and governance performance. Now, financial returns are central to that, because they drive our ability to do some things in this business. “
On the company’s capital allocation priorities, Lance said they haven’t changed since they were introduced in 2016. “We want to maintain our dividend yield,” Lance said. We want to fully increase annual profits every year. We want an A-rated balance sheet that can handle fluctuations in cycles. We want to return 30% of our cash flow to our shareholders straight from the top. And we do this through three tiers – regular dividends, stock buybacks, and a very large cash balance at the end of the year. This year, we returned 38% of our cash to our shareholders. After this disciplined capital investment, we will invest and grow our company. Invest a good amount of capital to expand the scope of cash generation from these operations.”
digital transformation efforts. Within the scope of operational, financial, environmental, social and corporate governance objectives, the COP is also making a significant effort in the area of digitalisation. The Chairman stated that digital technologies are essential to make our assets and operations smarter and more automated. “Therefore, we are deploying focus technologies broadly across our business processes and business management functions. We are bringing them to maturity to integrate data and drive capital business decisions. We are evolving our culture to be more flexible, customer focused, and digitally smart. We are reducing outdated or redundant technology. We are aware of the need and we make disciplined investments. We focus on IT security.”
Furthermore, Lance Articulated, there are two sets of initiatives, improving safety and lowering the cost of supply. Some of the supporting technologies are artificial intelligence, machine learning, and data analytics. There are two other families of initiatives. One is efficiency improvement, and the other is excellence in environmental, social and corporate governance. All of these initiatives, the Chair explained, reward the COP with additional cost savings or improved performance. “We have $64 million in reduced costs and capital, 3,000 barrels a day of additional production in just one area of Alaska, 32 million barrels of top-of-the-line resources than we have. [properties] [additional] Production efficiency gains, and 2,400 hour savings on Canadian appraisal wells, all thanks to big data and improved completion. In addition, one hundred thousand dollars was saved through back office automation and other measures. $230 million in value delivered through data analytics alone, expanding our emissions monitoring reach in the United States”
Lance said COP is sure they are very good at collecting data. “The work now is to understand, analyze and use everything,” he explained. “So, there is a lot of potential advances in the future. We are very well collaborators in analytics, process automation, and digital assistance. We are halfway there and making progress in field automation, digital twins, Internet of Things, drones, and robotics. And [also] Quantitative statistics. Once that matures, it will help pay off all those others
Among the “accelerators” used by COP, digital twins show great promise. “We have 12 cases where twins are in use, under development, or under discussion at the company,” Lance explained. “Thousands of people we have around the world use these twins. We connect twins to historical and current performance data sources, to simulate future performance, and to aid our decision-making. For example, we have reduced time to complete instructions by 80%, and time to complete maintenance by 90%. %.Meanwhile, improving production through this whole thing.These visualizations enable our employees to work on assets without being on site.This eases the demand on people and on the travel budget.We expect the Twin to dramatically improve efficiency and HSE performance with reduce cost.”
Integrate digitization with other technologies. Lance cited some examples where the COP has succeeded in combining digitization with other technologies. One example is the realization of growth from unconventional resources. “In this case, it’s the horizontal drilling of the Eagle Ford shale in South Texas,” the chairman said. “It is important to understand vertical fault drainage. We don’t want to fracture areas that are already drained by adjacent wells. Therefore, we have applied several techniques—analytics, physics-based modeling, fiber optics, fracture diagnostics, geochemical production data. We get Better subsurface characterization and improvements around our drilling operations.”
The location of a typical COP well in the Eagle Ford shale in southern Texas. Photo: ConocoPhillips.
In another example, back at Eagle Ford, COP saves $60,000 per well by automating directed drilling. “Shale wells have very uniform characteristics,” Lance said. “They make drilling a nearly repeatable manufacturing process, and it makes way for automation, which leads to improved drilling, performance and safety. Of our 9,400 employees, we estimate about 6,000 of them use analytics today. This has enabled global standardization and best practices, reduced costs, and facilitated learning. “.
Another great example of this, Lance noted, came after COP acquired Concho Resources last year. The company applied the analytics to 200 heritage wells and just generated annual savings of more than $20 million.
ESG activities. Meanwhile, the industry faces increased scrutiny over ESG and he and COP are responding. “At ConocoPhillips, we use marginal mitigation cost curve analysis to identify the most cost-effective emission reduction opportunities,” explained Lance. “We also use analytics for collection forecasting and reporting, and we’ve reduced methane intensity by 65% since 2015. And we’re not done yet. We’ve done that by upgrading the portfolio, raising the energy efficiency of our operations, replacing equipment, electrifying some of those facilities’ equipment, and discovering and repairing leaks. We’ve installed 1,600 sensors, and are constantly monitoring methane leaks. We’re also using satellite-based low Earth orbit detection, and we plan to further reduce emissions by 10% by 2025 from our 2019 baseline on our methane density.” Lance said COP is committed to the World Bank’s initiative to eliminate routine incineration by 2030, although the company wants to do so five years earlier.
“It’s not just the process that extends to the back office, where we’re running a multi-year program,” Lance continued. “We intend to monitor and update ERP and improve efficiency and access to data. We want to encourage innovation in capital expenditure management, in our finance, O&M costs, human capital, and our supply chain functions. We will do this by increasing capacity and simplifying common ways of working. Enhance Flexibility through training and workforce retention Reduce costs by spending less time and improve efficiency, increase the role of standardization, automate manual steps, integrate unit flows, enhance decision-making by providing faster access to information, improve analysis and cultivate reliable data sources.
cyber security Another area of concern is the COP. “It raises concerns, certainly in the industry and around the world,” the chairman noted. “We have all seen massive data breaches that violate laws and privacy rights. Remote working has expanded the attack space that can be used by criminals and even insiders. These people are at risk of sabotage, theft, spying, fraud, hacking, phishing, ransomware, you name it. It’s a big mess. Our supplier and contractor networks face similar challenges. They also face counterfeit components, poor design and manufacture, and improper maintenance. Cyber attacks also threaten ESG’s performance, once again undermining the industry’s credibility and sustainability.”