ConocoPhillips Is Making the Wrong Move

ConocoPhillips’ (COP) financials clearly indicate the weakness that the company is seeing in its business. For instance, in the second quarter of 2015, ConocoPhillips had reported a net loss of $179 million i.e. minus $0.15 per share as compared to positive earnings of $2.1 billion, or $1.67 per share in last year’s second quarter. Post adjustment for some items like deferred tax due to amendments in Canadian tax laws and non-cash impairments, the company’s adjusted earnings were $81 million as against $2.0 billion or $0.07 per share compared with $1.61 per share in second quarter of 2014.

A closer look

The precipitous decline in adjusted earnings was due to lower realized prices.

The company’s total realized price was $39.09 per barrel of oil equivalent (BOE), compared with $70.17 per BOE in the second quarter of 2014. The operating costs were driven down 11% from $2.43 billion to $2.16 billion.

In the Lower 48 region, the quarterly production marginally increased by 16 thousand barrels of oil equivalent per day (OED) to 556 thousand barrels of OED. Further, the company is evaluating the opportunities at the sites of Gila, Shenandoah and Tiber.

In Canada, the company produced 306 thousand barrels of OED, up 22 thousand barrels of OED from that of second quarter 2014. Production in Alaska decreased by 19 thousand barrels of OED to 174 thousand barrels of OED due to normal field decline and downtime somewhat offset by improved well performance.

In Europe, production was 206 thousand barrels of EOD. There was a decrease of 7 thousand barrels of OED compared with the same period of last year. In the Asia Pacific and Middle East region, production was 349 thousand barrels of OED, an increase of 27 thousand barrels of OED compared with the second quarter of 2014. This was largely due to the growth from major projects, slightly offset by normal field decline. The production from the company’s other international operations was near about same as last year at 4 thousand barrels of EOD.

Overall, the company produced 1.595 million barrels EOD in the recently concluded quarter excluding Libya where the Es Sider Terminal did not operate because of on-going turbulence. After adjustments for 30 thousand barrels EOD due to some extra-ordinary items, production increased by a net 69 thousand barrels of EOD i.e. 4 % more than the same period last year.

However, most companies are cutting costs by cutting their production. Industry figures from the U.S. Energy Information Administration gives some idea of how sharp the cutback is taking place in the US. The rig counts are also declining every week. This shows that in the long term the oil & gas companies will be able to match supply with demand and prices will then start reviving. But as of now they need to be patient with the idle rigs and low margins pervading the industry.


Thus, ConocoPhillips’ move of increasing production is not a good idea in the current oil and gas environment as this contributes to the industry oversupply. So, I think that it will be a prudent move to watch this stock from the sidelines until and unless oil prices improve.

Published on Oct 22, 2015
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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