ConocoPhillips Is Likely To See A Drop In Its 3Q’17 Earnings Due To Lower Production

by Trefis Team
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ConocoPhillips (NYSE:COP), one of the largest independent oil and gas companies, is expected to report its September quarter 2017 financial results on 26th October 2017((ConocoPhillips To Announce Its September Quarter Results, 5th October 2017, www.conocophillips.com)). The company was forced to shut its operations in the Eagle Ford due to Hurricane Harvey during the quarter. While the company managed to resume its production in the region quickly, we expect the loss of production to weigh on the company’s top line as well as earnings for the quarter. Besides, ConocoPhillips also closed the sale of the previously announced San Jaun Basin and Panhandle assets and received cash proceeds for these transactions.

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Key Trends Witnessed In 3Q’17

  • As mentioned earlier, ConocoPhillips had to curtail its drilling and production in the Eagle Ford region due to the heavy rains and floods caused by the Hurricane Harvey in early September. Although the company has not changed its third quarter and full year production guidance, we anticipate a drop in the company’s revenue and earnings for the quarter.
  • Further, commodity prices remained volatile in the last three months due to the impact of various hurricanes and storms along the US coastline. Despite this, the WTI crude oil prices averaged at $48.18 per barrel for the September quarter, almost similar to the previous quarter. With no improvement in commodity prices and lower production, we expect the company’s revenue to remain depressed compared to the previous quarter.

  • During the quarter, ConocoPhillips closed the previously announced sales of San Juan Basin and Panhandle assets and realized cash proceeds of $2.7 billion from these deals, which are likely to be used for corporate purposes. These deals have not only increased the cash available for the company’s operations, but are also expected to enhance margins and profits in the coming quarters.
  • Post the recent asset sales, ConocoPhillips has increased its share repurchase program from $3 billion to $6 billion, of which $3 billion is likely to be completed in 2017. The decision will allow the company to optimize its capital structure, and augment its earnings per share in a weak and uncertain oil price environment. Further, the company has announced a quarterly dividend of 26.50 cents per share for the quarter, hinting at improving cash flows.
  • Lastly, the management expects to utilize the excess cash from the asset sales to repay $7 billion of debt in 2017, and maintain a net debt position of $15 billion at the end of the year. Lower debt obligations will shrink the company’s interest expense on an annual basis and will boost its bottom line, even if commodity prices continue to be weak.

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