Summary
Why Alaska is a big deal for ConocoPhillips.
Highly profitable barrels with a track record to prove it.
Where ConocoPhillips is targeting upside in the state.
ConocoPhillips (NYSE:COP) has a major understated presence in Alaska. As a source of roughly half a million barrels per day of conventional oil production, Alaska’s upstream sector is highly profitable. During the worst of the 2014-2017 downturn, ConocoPhillips still churned out $4 million in net income from its Alaskan division in 2015 and $319 million in 2016. That grew to $1.466 billion last year, which is better put as an adjusted $684 million (excluding major tax benefits and impairment charges). In the years to come, ConocoPhillips is likely to keep posting higher and higher net income generation from its Alaskan division. Let’s dig in.
Really profitable barrels
What makes Alaskan oil production highly profitable is the relatively low cost of developing these conventional resources. This is seen through the lower DD&A per BOE (depreciation & depletion costs per barrel of oil equivalent produced) expenses conventional wells incur versus unconventional wells, which is only marginally offset via higher operating expenses (lease operating expenses tend to be higher for conventional wells over time).
