Must-know: Key takeaways from ConocoPhillips’ Q2 earnings

Market Realist

Must-know: Key takeaways from ConocoPhillips’ Q2 earnings (Part 1 of 8)

ConocoPhillips

ConocoPhillips (COP) is an independent exploration and production company with major operations across the world. It operates in Alaska, the contiguous U.S., Europe, and Asia Pacific.

In the U.S., COP’s operations are concentrated in the Eagle Ford, Bakken, and the Permian regions.

2Q 2014 earnings

On July 31, COP reported its second quarter earnings. Revenues for the quarter were $13.8 billion, missing Wall Street analysts’ estimate of $15.3 billion. But the results were 3.5% higher than last year’s revenues.

Adjusted net income (excluding special items) was $2 billion—just about beating the $1.9 billion estimate by Wall Street analysts and 1.5 % higher on a year-over-year basis (or YOY). Special items, as reported by the company, related to pending claims and settlements.

Adjusted earnings per share (or EPS) amounted $1.61. Again, this just brushes past analysts’ estimate by $0.01.

Operational performance

Total second quarter production was 1,556 barrels of oil equivalent per day (or MBOED). The Eagle Ford and Bakken regions in particular saw production of 540,000 barrels of oil equivalent per day (or boe/d). This was 38% higher than the previous quarter’s production.

The company noted that its production this quarter was 95,000 boe/d or 6.5% higher YOY.

COP allocated 2.5% of this growth to the lower downtime experienced in the quarter. It said 4% or 60,000 was a result of organic growth, the majority of which came from increased liquids production—especially in the U.S.

Stock drops due to a revenue miss

COP missed its revenue estimates by $1.5 billion. Although COP’s net income beat analysts’ estimates and was 1.5% higher YOY, COP stock still saw a negative market movement following the earnings release.

Prices closed at $80.57 on July 31, the day of the release. This was 2% lower than the previous market close of $82.50.

Also, despite 4% production growth (adjusted for downtime in Libya), investors seem to be wary of COP’S capability to maintain current production levels, given the geopolitical problems  in regions like Russia.

Lower 48 drive production growth

Much of COP’s production growth was driven by its operations in the lower 48 states of the U.S.—especially in the Eagle Ford and Bakken regions.

Key stocks and ETFs

Major oil and gas producers in these 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).

Financial performance

The following part of this series takes a deeper look at COP’s financial performance.

Continue to Part 2

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