By Ernest Scheyder
NEW YORK (Reuters) - ConocoPhillips said on Wednesday it will boost oil and natural gas output for the rest of the decade but vowed it would do so only when it was financially prudent and that it would strictly adhere to shareholder returns.
The largest U.S. independent oil and natural gas producer plans to spend an average of $5.5 billion annually for the next three years as long as oil prices stay above $50 per barrel.
"Our value proposition is not built around production growth. It is built around returns," Chief Executive Ryan Lance said in an interview on the sidelines of the company's investor day in New York.
The spending forecast, an increase from 2017 and higher than many Wall Street analysts expected, comes as Conoco, like some peers, focuses more on generating profits rather than boosting production at any cost.
Much of that discipline is helped by better technology and more efficient processes. The company expects production to grow 5 percent each year for the rest of the decade, helped by output spikes in the Eagle Ford and Permian shales of Texas, two of the largest U.S. oilfields.
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That growth will come, Lance said, regardless of what members of the Organization of the Petroleum Exporting Countries decide this month when they meet in Vienna to debate extending an agreement to curb oil production.
"I don't care what they do," Lance said of OPEC's 14 members. "They're not going to change our plans."
OPEC and partners, including Russia, are largely expected to extend the agreement, which ends in March.
U.S. oil prices have risen more than 5 percent in the past month due in part to the success of OPEC's supply cuts. That raises the specter of cost hikes for oilfield services, a situation that would erode margins. But Lance said that Conoco would pull back operations rather than burn cash if that scenario occurred.
"If the returns start to be diluted due to inflationary pressures, we'll pull back and think about fighting another day," he said.
'ULTIMATE MEASURE OF VALUE CREATION'
Lance and his deputies said at an investor presentation on Wednesday morning that they should be able to send more than 30 percent of cash flow back to shareholders in the form of dividends and share buybacks by 2020.
Shareholder returns are the "ultimate measure of value creation in our business," Lance said.
Lance and his deputies were at pains to stress the focus on boosting profits and increasing production only when it makes financial sense.
"It's just not getting big for big's sake," Lance said. "It's about generating high-value earnings and cash flow to boost our returns."
Wall Street has pressured oil producers in the past year to stop rewarding executives for spending billions of dollars on new wells when crude prices are depressed.
Lance's 2016 compensation nearly tripled to $19.2 million from 2015 levels, fuelling accusations from some investors that the company was not serious about its new focus on shareholder returns.
The pay jump came the same year that Lance slashed Conoco's dividend - the first in 25 years for the company - and the stock price fell.
Lance said on Monday that changes were underway in how the company calculates executive compensation. "We have identified things that will be addressed" in compensation discussions, said Lance, who is also chairman of the company's board. "You can expect more disclosure from us on that front."
Shares of Conoco shares edged up about 0.5 percent to $53.73 in afternoon trading as oil prices edged down by about 0.8 percent.
(Reporting by Ernest Scheyder; Editing by Chizu Nomiyama, Jeffrey Benkoe and Susan Thomas)