ConocoPhillips' Best Business Segment in 2016 So Far

Cop Production By Region
Cop Production By Region

Data source: ConocoPhillips investor presentation. Chart by author. Note: Production in thousands of barrels of oil equivalent per day.

While several factors are driving APME's production growth, the primary contributor is the ongoing ramp-up of the company's APLNG facility in Australia. The first train of that LNG export facility has already loaded 27 cargoes this year, which is ahead of the company's expectations. In addition to that, the company's Gumusut project in Malaysia, which oil giant Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) operates, continues to produce at a high level and is exceeding expectations.

Will APME continue to drive results?

Looking ahead, ConocoPhillips believes that its APME segment can continue to drive results. Not only is production from APLNG's first train ahead of expectations, but the company expects to deliver its first cargo from train two in the fourth quarter. That is a big turning point because APLNG starts becoming a cash flow generator for the company at $45 oil once both trains ramp up.

In addition to that, a third party is commissioning a pipeline at the company's KBB project in Malaysia, which it also jointly owns with Royal Dutch Shell. Getting that pipeline up and running is critical because repairs were constraining sales. With those repairs complete, it should drive production volumes higher at KBB in the second half of this year.

Finally, ConocoPhillips' APME segment could see an additional boost from improving oil prices . After averaging around $39 per barrel during the first half of this year, Brent crude has been in the mid-$40s for much of the third quarter. Furthermore, while estimates vary, several analysts expect oil to head even higher by the end of this year. Needless to say, higher crude prices, when combined with rising production, should drive even stronger second-half earnings for ConocoPhillips' APME segment.

Investor takeaway

Weak oil prices put intense pressure on ConocoPhillips' earnings, especially those from its North American segments. While its global operations are under that same pressure, its APME segment was a bright spot thanks to stronger-than-expected production from recent major projects. Given that production is expected to continue ramping up this year, that segment should continue to be a bright spot in 2016.

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Matt DiLallo owns shares of ConocoPhillips. 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 .

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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