ConocoPhillips (NYSE: COP ) has the next few years pretty well planned out. A $16 billion annual capital plan is expected to fuel a 3%-5% annual growth rate in both production and margins through 2017. A combination of key development programs and major projects coming online are the two keys to realizing that growth. But as a long-term investor I'm looking for what the company has planned beyond the next few years. The company gave a pretty good hint at what to expect at its analyst day earlier this year.
Emerging North American unconventionals
ConocoPhillips' growth is currently being fueled by unconventional shale plays like the Eagle Ford and Bakken Shale plays. But the company sees new shale plays emerging, which are a key to fueling its next phase of growth. Specifically it sees the Permian Basin and Niobrara plays in the U.S. and the Montney and Duvernay plays in Canada providing growth potential beyond 2017 as we see in the following slide.
As that slide shows the company has about a half-million net acres that are currently under appraisal. So far the company is seeing promising results that suggests it has high-margin, liquids-rich growth opportunities in each area. We should know more by the end of the year as the company has a number of appraisal wells to be drilled this year. Right now its plan is to drill 24 wells in the Permian Basin, 18 in the Niobrara, 14 in the Montney, and three in the Duvernay. The company is likely to ramp up rig counts and wells in the future if the wells it drills this year show solid results.
Deepwater Gulf of Mexico
The other area holding real promise to deliver future production growth is the deepwater Gulf of Mexico. ConocoPhillips is a partner on four recent discoveries that show significant potential. Topping that list is the Shenandoah discovery with partners including Anadarko Petroleum (NYSE: APC ) and Marathon Oil (NYSE: MRO ) .
The Anadarko-led prospect was first discovered in 2009, though the first appraisal well wasn't drilled until last year as seen on the following slide.
The fact that the first appraisal well hit 1,000 feet of net pay is incredible as it suggests that this is a truly world-class oil discovery. For perspective, that well encountered more than twice the net pay of the Coronado find. Because of this success Shenandoah really has moved to the top of the list for ConocoPhillips, which is why its partners, including Marathon Oil and Anadarko Petroleum, are planning another appraisal well this year. If all goes well Shenandoah could be ConocoPhillips' first major deepwater prospect to begin producing oil later this decade.
The third area that could fuel future growth is offshore Africa in places like Angola and Senegal. ConocoPhillips is the operator in two deepwater exploration blocks in Angola. It's planning to drill its first well there this current quarter as part of a four-well program. There are two key reasons why the company sees potential in Angola. First, it appears to be analogous to the massive Brazilian finds across the ocean as well as being adjacent to recent discoveries on adjacent blocks as seen in the following slide.
In addition to that ConocoPhillips also has a couple of deepwater wells planned for Senegal. The first well is expected to be drilled in the current quarter with the second well following in the third quarter. Success in Senegal could give ConocoPhillips an area of production growth later this decade as it could open up a whole new area for energy production to the industry.
ConocoPhillips has a number of interesting exploration opportunities that position the company to deliver growth in the back half of the decade. The company has a real balance between unconventional exploration opportunities in North America as well as more conventional deepwater opportunities in the Gulf of Mexico and offshore Africa. Because of this long-term opportunity investors can confidently continue to hold shares as the company appears to have more than enough growth opportunities to fuel its next phase of growth beyond 2017.
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