ConocoPhillips Begins Oil Production in Malaysian Facility

ConocoPhillips (COP) announced the start of oil production from Gumusut-Kakap Floating Production Facility, located approximately 75 miles offshore Sabah, Malaysia. The facility is the second major Malaysian project startup in 2014 after Siakap North-Petai.

Along with these two operational projects, other new project startups in Malaysia are expected to add approximately 60,000 barrels of oil equivalent per day to ConocoPhillips’ production volumes by 2017. The addition of these high-margin projects is crucial to the company’s overall plan of 3% to 5% production and margin growth annually.

The Gumusut-Kakap field is located in water depths up to 4,000 feet. Production from the field will initially utilize 14 of the planned 19 subsea wells, with oil exported via pipeline to the Sabah Oil and Gas Terminal in Kimanis.

ConocoPhillips and Royal Dutch Shell plc (RDS.A) the operator of the project, each holds a 33% stake in the project. Apart from them PETRONAS Carigali Sdn. Bhd. And and Murphy Oil Corporation (MUR) holds stakes of 20% and 14% respectively.

ConocoPhillips holds leading positions in both natural gas and heavy crude oil acreages in North America. It boasts a legacy position in the North Sea and growing exposure to lucrative international regions. The Houston, TX-based company thus looks forward to replacing reserves and sustaining production growth over the long term.

ConocoPhillips’ initiatives toward liquids-rich plays are gaining momentum through the Eagle Ford, Bakken and Permian plays. The company is also poised to benefit from a pipeline of projects in the Gulf of Mexico, Malaysia, the liquefied natural gas project in Australia, the U.K., Norway, and the Canadian oil sands, apart from the US Lower 48 liquids-rich plays. Oil sands expansion projects are also on track.

Since Apr 2012, when ConocoPhillips divested its refining operations to Phillips 66 (PSX), it has delivered total shareholder returns of 22%. ConocoPhillips has completely shifted focus to upstream operations and thus oil and gas prices play a major role in determining its performance. The company plans to expand production by maintaining its growth focus on reserves, through global drilling programs in legacy assets, unconventional assets and major projects.

ConocoPhillips’ margin growth would also be aided by its shift of production mix to higher-value products. Management expects to spend $16 billion on average annually and allocate 95% of its capital to investments that deliver above-average margins. The recent activity targets offshore prospects in Australia, Angola and Senegal, conventional exploration in Norway and Indonesia, and unconventional exploration in North America, Poland and Colombia.

Currently, ConocoPhillips holds a Zacks Rank #3 (Hold).

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