Improving Production Volumes, Upbeat Oil Prices Should Drive ConocoPhillips’ Profits In 2019

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ConocoPhillips

ConocoPhillips (NYSE: COP) is an oil major that specializes in the production of Oil, Natural Gas and Bitumen products. Based out Houston, Texas, the oil producer has diversified operations across North American, South America, and Africa. Per Trefis estimates, ConocoPhillips’ shares have a fair value of $71, which is roughly 15% higher than the current market price. Our interactive dashboard captures the outlook for ConocoPhillips in 2019. Also, you will find more Trefis Energy company data here.

Key Takeaways From ConocoPhillips’ Q1 Results, And Expectations For Full-Year 2019

ConococoPhillips beat analyst expectations for the first quarter thanks to an increase in realized price of oil and natural has, as well as production volumes for the quarter compared to the figure a year ago. Revenues for the quarter came in at $10.06 billion – up from $8.96 billion in 2018 Q1.

  • Total production volume rose to 1,318 MBOE from 1,224 MBOE a year ago. We expect total production volume for the year to be 1,320 MBOE – in line with the company’s expectation for the figure to increase 3% annually over the next 5 years
  • Total realized price for the quarter was $50.59 per BOE, which was a slight improvement from the figure of $50.49 per BOE last year
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Crude Oil Segment:

  • Permian Shale largely drove ConocoPhillip’s crude production for the quarter. ConocoPhillips saw production of Crude Oil rise by 30% in the shale and 5% overall, to 639 MB/d for the quarter. We expect total production to be around 640-645 MB/d for the year. Also, the realized price for crude oil should remain around $60-62 for the year.

Natural Gas Segment:

  • Natural Gas production fell by 5% for the quarter, while the realized price of natural gas increased by 5%, with most of the production continuing to be produced in the Appallachia shale formation. We expect total production to be around 2874 MCF for the year, while the realized price for natural gas should be around $2.60 for the year.

NGL and Bitumen Segment:

  • Natural Gas Liquids production rose by 17% while that for Bitumen fell by 5% for the quarter. This is largely due to increased demand for NGL, even as softer macroeconomic conditions hurt demand for Bitumen over the period. We expect total production to be around 96 MBD for NGL, and 2780 MBD for Bitumen in FY’19. Also, we forecast the realized price for NGL to be $6.6 MBTU, while the realized price for Bitumen will be around $3600.

Cash Flow and Capital Expenditure:

  • Cash flow improved for the quarter, increasing by almost 46% on the back of improved production. Capital expenditure slowed down in the quarter.
  • With the capital expenditure cycle almost over and divestiture of inefficient assets almost complete we believe the company is well placed to improve cash flow in the coming quarter.
  • Meanwhile, development costs have fallen by 40% over the past 3-4 years, and this trend is expected to continue over the next few quarters. This will lower expenses, thereby improving cash flow for the company further in the near future.

We forecast ConocoPhillips’ EPS for full-year 2019 to be around $7.80. Taken together with our forward P/E multiple of 9.5, this works out to a $71 price estimate for the company’s shares as detailed in our interactive dashboard.

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