ConocoPhillips ( COP )
reported third quarter 2012 adjusted earnings of $1.44 per share,
surpassing the Zacks Consensus Estimate of $1.19. The reported
figure was also up by almost 2.9% from the year-earlier profit of
$1.40, reflecting higher-than-expected production of crude oil from
its high-margin areas like the Eagle Ford and Bakken.CONOCOPHILLIPS (COP): Free Stock Analysis
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However, including items related to asset sales and taxes, the
company's earnings per share fell 23.6% year over year during its
three-month period ending September 30, marking its full quarter as
a standalone oil and gas producer after spinning off its refining
and marketing operation, Phillips 66 ( PSX ).
The downtrend was mainly due to lower revenue and production.
Revenues in the reported quarter decreased to $15,089.0 million
from the year-ago level of $16,695.0 million. However, the reported
figure comfortably surpassed our projection of $11,115.0
Exploration and Production
Daily production averaged 1.525 million barrels of oil equivalent
(MMBOE), down from 1.538 MMBOE in the year-ago quarter. The decline
was mainly due to the impact of divestitures. In addition, natural
decline in fields also contributed to the weak production that was
partly mitigated by production from key projects and higher
production in China and Libya.
Average realized price for oil was $102.72 per barrel, compared
with $106.61 in the year-earlier quarter. The price for natural gas
was $4.56 per thousand cubic feet (Mcf) versus $5.45 realized in
third quarter 2011, reflecting a decrease of 16%. Natural gas
liquids (NGL) were sold at $40.39 per barrel, a decrease of 27%
from the year-ago level of $55.61 per barrel.
As of September 30, 2012, ConocoPhillips generated $3.9 billion in
cash from continuing operating activities (excluding working
capital). At quarter end, the company had total cash of $1.3
billion and $21.1 billion in debt, with a debt-to-capitalization
ratio of 31%.
ConocoPhillips also paid $800 million in dividends and incurred
$3.7 billion in capital expenditures during the third
Asset Sale Program
The company has generated $2.1 billion in proceeds from asset
sales for the first nine months of 2012, and expects to wrap up its
$8-$10 billion disposition program by the end of 2013.
For the fourth quarter, production is expected to boost
sequentially on account of completion of turnaround activity and
ongoing ramp-up in major North American programs, mainly in the
Eagle Ford and oil sands.
ConocoPhillips expects its full-year 2012 production guidance in
the range of 1.570-1.580 MMBOE/d. The company also remains on track
to deliver average annual production as well as margin growth of 3%
to 5%, as it focuses on liquid-rich ventures primarily in the U.S.
With leading positions in both natural gas and heavy crude oil in
North America, as well as a legacy position in the North Sea and
growing exposure to lucrative international regions, ConocoPhillips
expects to replace reserves and sustain production growth over the
long term. ConocoPhillips' exploration initiatives toward
liquids-rich plays are gaining momentum through the Eagle Ford,
Bakken and North Barnett shale plays.
Again, post-split, the two separate companies would stand to gain
as the two entities will be able to pursue greater opportunities in
their respective market segments without the constraints of the
parent company. It will also better serve the needs of both
investor groups. We expect this move will allow ConocoPhillips to
narrow the returns gap, which has historically lagged its
However, we remain cautious about the company's weak production
volume. Again, ConocoPhillips remains vulnerable to unstable
movements in crude oil and natural gas prices, as well as the
volatile nature of the macro backdrop. We believe that any
downtrend in the global economy will affect the supply-demand
fundamentals of oil and gas, hurting the sales prices for crude oil
and natural gas.
We have a Zacks #3 Rank (short-term Hold rating) for the third
biggest U.S. integrated oil company - ConocoPhillips - following
ExxonMobil Corporation ( XOM )
and Chevron Corporation ( CVX