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3 Things to Watch When ConocoPhillips Reports Earnings

Brent Crude Oil Spot Price Chart
Brent Crude Oil Spot Price Chart

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That represented a $40 per barrel drop in just three months and will have a very direct impact on income as every $1 change in the price of Brent crude oil impacts ConocoPhillips' annual income by about $85 million.

In addition to the direct impact from falling oil prices, investors will want to look to see if the drop in oil prices takes another bite out of profits by forcing the company to record an impairment charge due to any asset writedowns or even layoffs. Write downs have the potential to cause the headline earnings number to be much worse than it actually is, which is why investors need to look closely at what's in the reported numbers.

We know that earnings will be down on the quarter, but we want to see if anything other than falling oil prices is the culprit.

Look for changes to the outlook

The final thing investors will want to look for is changes to the company's outlook for the year ahead. ConocoPhillips already slashed its capital spending plan for 2015 by 20% over its 2014 spending level. This should still yield production growth of about 3% on the year, which is at the bottom end of the company's long-term plan of 3%-5% annually. However, oil prices have continued to fall since the 2015 budget was announced, so it's quite possible that the company could make more cuts.

What investors want to see is how committed the company is to its current spending plan. It's quite possible that the company might shave it down further as it follows the trend of revisions we are seeing to 2015 capital spending plans by energy companies as oil prices have continued to slide. The other thing investors will want to make note of is the company's overall view for the year ahead. Another cut to capital spending will suggest the company is growing more bearish on oil prices and growth. Meanwhile, a hint that it's open to acquisitions could suggest that the company sees opportunities ahead of it amid the turmoil.

Investor takeaway

The dramatic drop in oil prices over the past quarter will certainly have an impact on ConocoPhillips' earnings. However, investors need to look past that drop to see if there is anything else that had an impact on results such as a production shortfall or big writedown. Finally, investors should take a closer look at the company's outlook as that could provide clues as to what direction the company plans to head as oil prices continue to fall.

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The article 3 Things to Watch When ConocoPhillips Reports Earnings originally appeared on Fool.com.

Matt DiLallo owns shares of ConocoPhillips and has been an investor in the company for about a decade. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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