ConocoPhillips (NYSE:COP) reported relatively soft Q1 results on Monday, as lower output led to a decline in operating revenues and profits despite rising crude prices.((ConocoPhillips Reports First-Quarter Earnings of $2.9 Billion or $2.27 Per Share, Company Press Release, April 2012)) The company has shown quarterly drops in production in most of its recent quarters as it has gone ahead with a $20 billion asset sale program through which it has sought to divest less profitable ventures. Results were also hit by low natural gas prices in the U.S., which forced the company to announce production cuts in North American natural gas production this year. Rivals Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) will release their quarterly results this week.
We have a $79 price estimate for ConocoPhillips, which is at a 10% premium to its current market price.
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The company’s upstream results were the cause of some disappointment, as lower production dragged down revenues as well as profitability. Adjusted earnings for the upstream division were $2.1 billion, compared to $2.2 billion in Q1 2011. Including special items, the company reported $2.55 billion in profits in this quarter. Profits were hit by lower production, higher taxes and low gas prices in the U.S. The company’s production fell to 1.64 million barrels of oil equivalent / day (MBOE/d), which was 65,000 BOE/d lower than in Q1 2011. Production was hit by asset sales and the suspension of operations in its offshore fields in China. However, partial resumption of operations in Libya, shale development and progress in Canadian tar sands helped the company offset natural declines from fields.
ConocoPhillips’ output over the next couple of quarters could decline further according to management because of turnarounds, maintenance and dispositions. Management has said that average output for 2012 will be around 1.55-1.60 MBOE/d.
Midstream and refining and marketing results showed a slight decline in Q1 on a year-over-year basis. However, the profitability of the chemicals business jumped from $182 million in Q4 2011 to $300 million in the first quarter. Midstream earnings also showed an increase in Q1 over the same period last year. ConocoPhillips will be spinning off its midstream, refining and marketing and downstream divisions under the name ‘Phillips 66’. The new company will focus on chemicals and pipeline operations for growth.