ConocoPhillips (COP) reported fourth-quarter earnings of $1.16 per share, above the Zacks Consensus Estimate of $1.12. However, earnings per share were well below the year-earlier figure of $1.28. This fall was mainly due to lower natural gas prices, a sharp decline in refining margins and reduced volumes, partially offset by improved oil prices and lower costs. Including one-time items, earnings for the quarter were 81 cents per share.
Earnings by Segment
The Exploration and Production (E&P) segment reported earnings of $1.2 billion during the quarter, up significantly year over year. The increase was mainly driven by increased liquid prices, partially offset by lower natural gas prices and volumes. Daily production from the E&P segment including Canadian Syncrude averaged 1.83 million barrels of oil equivalent per day (MMBOE/d), down from 1.87 MMBOE/d in the year-ago quarter.
The Refining and Marketing (R&M) segment reported a loss of $215 million, compared to a profit of $289 million in the year-ago quarter. The domestic loss in the segment was partially offset by profit from international operations. However, realized refining and integrated margins were significantly lower than in the year-ago quarter. Domestic refining crude oil capacity utilization rate for the quarter averaged 83%, compared to 94% a year earlier. International capacity utilization rate averaged 58%, versus 89% last year. Worldwide utilization averaged 76%, compared to 93% in the year-ago period.
The Midstream segment (which includes the company’s 50% interest in DCP Midstream LLC) contributed $97 million to the net income during the quarter, up approximately 41% year over year. The increase was primarily driven by strong realized prices.
ConocoPhillips’ earnings from its LUKOIL Investment segment came in at $388 million, up dramatically from the prior-year quarter. LUKOIL’s estimated contribution to the company’s quarterly E&P volumes was 431,000 barrels of oil equivalent per day. The Chemicals unit reported earnings of $54 million as against a loss of $6 million a year ago.
On the Balance Sheet
During the quarter, ConocoPhillips generated cash from operations of $5.1 billion. At the end of the quarter, the company had $28.7 billion in debt (reduced from $30.5 billion at the end of previous quarter), with a debt-to-capitalization ratio of 31%. During the quarter, Conoco paid $700 million in dividends. The company invested $3.1 billion in capital expenditures.
In an effort to strengthen its financial position and improve its balance sheet, Conoco intends to sell $10 billion of assets over the next two years, and plans to spend $11.2 billion for the capital program this year. The company’s initiatives to cut down its debt level are working well, resulting in a 2% reduction in debt-to-capitalization ratio. It has set a goal to reduce this level to 20% to 25%.
Conoco is becoming increasingly focused on E&P activities. It recently announced plans to expand the Surmont heavy oil project in Canada. Surmont is a Canadian oil sands steam-assisted gravity drainage (SAGD) facility. In addition, discoveries in the Browse Basin off the northwest coast of Australia and in the Gulf of Mexico are notable.
With leading positions in both natural gas and heavy crude oil in North America and a growing exposure to lucrative international regions, we believe Conoco will be able to replace reserves and sustain production growth over the long term.
We currently have a Neutral recommendation for ConocoPhillips shares.
Read the full analyst report on “COP”
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