ConocoPhillips’ operational performance and production forecast

Market Realist

Must-know: Key takeaways from ConocoPhillips’ Q2 earnings (Part 3 of 8)

(Continued from Part 2)

Production volumes by region

The lower 48 states constituted 35% of the total production volume, while the Alaska, Canada, Europe, and Asia-Pacific and Middle East regions accounted for 12%, 18%, 14%, and 21% of production volume, respectively.

Growth in the lower 48 states was primarily from liquids-rich regions of the Eagle Ford and Bakken plays. Both these regions collectively produced 208 MBOED in the quarter. This was almost 40% of the total lower 48 states’ production, and 38% higher than previous year levels.

ConocoPhillips’ (COP) peers in the Eagle Ford and Bakken regions include Pioneer Natural Resources (PXD), Continental Resources (CLR), and Whiting Petroleum (WLL). Most of these companies are components of the Energy Select Sector SPDR ETF (XLE).

The Canada segment’s performance was driven by improved well performance, while Europe saw a lot of project ramp-ups.

Meanwhile, Asia-Pacific and the Middle East production levels more or less remained flat compared to previous year levels (2 MBOED fewer than last year). So did Alaska’s production levels (4 MBOED fewer than last year). This was in line with the company’s expectations.

Forecast production numbers

COP has forecasted its third quarter production to be between 1,435 and 1,485 MBOED. The decline in production level reflects seasonal maintenance and turnaround activity.

Fourth quarter production is forecasted to be between 1,590 and 1,640 MBOED. This range is in anticipation of new startups in Canada, Malaysia, and Europe.

The company also raised the midpoint of its full-year production outlook to 1,525 MBOED–1,550 MBOED.

COP expects to achieve 3%–5% volume and margin growth in 2014.

Capex guidance

COP maintained its capex guidance for 2014 at around $16.5 billion–$17 billion, of which $8.1 billion has already been spent this year.

The company expects its capex to remain $16 billion per year through 2017. It plans to invest in higher-value products (natural gas liquids) and prolific geographic areas with an objective of achieving additional margin growth.

The Eagle Ford and Bakken’s liquids-rich regions serve the above objective well. So COP will likely be developing its asset bases in these regions in the short to medium term to achieve increased operating margins.

Operations

The following part of this series gives you a brief overview of COP’s lower 48 operations.

Continue to Part 4

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