HOUSTON (Reuters) - ConocoPhillips (COP.N) has looked at using derivatives to lock in oil prices in a volatile market, including so-called floors to guard against any new price drops, but Chief Executive Ryan Lance said on Tuesday the company is too big to hedge all of its output.
Lance made the comments at the top independent U.S. oil and gas exploration and production company’s annual shareholder meeting, after a shareholder asked why the company was not hedging its production, on track this year to be about 1.5 million barrels of oil equivalent per day (mboepd).
“If you wanted to protect all 1.5 million barrels per day I don’t think the market is that liquid,” he said. “We think it would be very difficult to execute something like that in the marketplace.”
Some operators have complained that tougher financial regulations from Washington have curbed the availability of hedging instruments, but small companies with aggressive hedging programs were able to keep drilling new wells profitably despite the worst price crash in years that started in mid-2014.
Lance added that the company’s diverse portfolio around the globe means it sells output against a handful of different oil and gas price benchmarks, providing it with some amount of what he called “natural” hedging.
“We’re spread out along the world so there’s no one individual marker that dominates our revenue flow in the company,” he said. “To get real protection that some of the smaller players do on the hedging practice is not as practical in a company of our size.”
The company has said it plans to sell up to $1 billion in non-core assets this year as it seeks to shore up its balance sheet after slashing its dividend in February for the first time in 25 years.
That cut, Lance said, came as credit rating agencies downgraded oil companies for essentially borrowing to pay dividends.
Lance told reporters he would not sell at fire-sale prices but said that prices for desirable onshore assets have looked fairly good recently.
Two proposals put forth by shareholders failed.
One would have required the company to be more forthcoming about political lobbying, especially on issues related to climate change. The other would have curbed the role that reserves growth plays in the bonuses paid to executives.
In its proxy materials, the company said its lobbying disclosures and compensation controls were already robust.
Reporting By Terry Wade; Editing by Bill Rigby