ConocoPhillips Posts Notable 2017 Earnings; Plans To Grow Production With Focused Capex

In line with the market expectation, ConocoPhillips (NYSE:COP), one of the largest independent oil and gas companies, posted a strong set of financial performance for its December quarter and full year 2017 financial results on 1st February 2018((ConocoPhillips Announce Its December Quarter Results, 1st February 2018, www.conocophillips.com)). While the company’s top-line showed a remarkable improvement backed by the recovery in commodity prices and volume growth, it missed the full year consensus estimate by a decent margin, which caused the investors to penalize the stock. However, the significant boost in the company’s adjusted earnings more than offset the negatively impact of the revenue miss. Besides, the company announced a 7.5% rise in its quarterly dividend, which further reiterated the market optimism in the stock.

We currently have a price estimate of $54 per share for ConocoPhillips, which is slightly lower than its market price. We will be updating our model shortly to reflect the 2017 results and guidance for 2018 and beyond.

See Our Complete Analysis For ConocoPhillips Here

Key Highlights of 4Q’17 Earnings

• Well within its target for the year, ConocoPhillips’ overall production for 2017 (excluding Libya) stood at 1,356 MBOED, 13.5% lower than the last year. Excluding the asset sales, the company’s output grew at around 3% due to improved well performance and development programs initiated in major projects during the year.
• The company’s total realized price for the year was $39.19 per BOE, compared with $28.35 per BOE in 2016. This reflected higher average realized prices across all commodities, which resulted in a 23% jump in the company’s revenue for the year.

• On the operational front, the US-based company announced its definitive agreement with Anadarko Petroleum (NYSE: APC) to acquire its 22% non-operated interest in the Western North Slope of Alaska, and its interest in the Alpine pipeline, for $400 million in cash. Additionally, the company will have 100% interest in the Willow discovery, which is estimated to have 1.2 million acres of exploration and development lands. This transaction is expected to enhance ConocoPhillips reserve base and production in the coming quarters.
• During the year, the oil and gas company generated cash flows of $7.1 billion, exceeding its capital investment of $4.6 billion and dividend payments of $1.3 billion. Further, it received cash proceeds of $13.9 billion from asset dispositions, which it utilized to paid down $7.9 billion of its long term debt, and repurchase shares of $3.0 billion.

Outlook For 2018

• Based on the asset sales completed during 2016-2017, ConocoPhillips expects its full year 2018 production (excluding Libya) to average between 1,195 to 1,235 MBOED, translating into a growth of 5% on a year-on-year basis.  The first quarter production is estimated to be around 1,180-1,220 MBOED.
• Given the company’s cost reduction measures, it expects to keep its adjusted operating costs for 2018 at around $5.7 billion. Further, the independent oil and gas producers will restrict its sustainable capital investment to about $3.5 billion, which could go up to $5.5 billion, based on the pace of its production growth.

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