ConocoPhillips Reports Earnings For the Second Quarter 2014
GuruFocus.com
ConocoPhillips (COP), last month, reported second-quarter 2014 earnings of $2.1 billion, or $1.67 per share, compared with second-quarter 2013 earnings of $2.1 billion, or $1.65 per share. Excluding special items, second-quarter 2014 adjusted earnings were $2.0 billion, or $1.61 per share, compared with second-quarter 2013 adjusted earnings of $1.8 billion, or $1.41 per share. Special items for the current quarter primarily related to additional income associated with pending claims and settlements, partially offset by leasehold impairments in the Canadian arctic.
� Strong second-quarter production of 1,556 MBOED from continuing operations, excluding Libya; total production of 1,594 MBOED.
� 6.5 percent production growth year-over-year, adjusted for Libya.
� Eagle Ford and Bakken combined production increased by 38 percent compared with second-quarter 2013.
� Major projects in Canada, Malaysia and the United Kingdom are on track for startup in the second half of 2014.
� Continued progress toward 2015 major project startups, including Eldfisk II, Surmont 2 and APLNG.
� Exploration and appraisal activity ongoing; conventional drilling underway in Angola, Senegal, Australia and the Gulf of Mexico; unconventional activities continue in Canada, the Lower 48 and Poland.
� Completed sale of Nigerian upstream business in July for net proceeds of $1.4 billion, inclusive of deposits received.
� Increased quarterly dividend by 5.8 percent in July.
"This quarter is evidence of our commitment to deliver annual production and margin growth of 3 to 5 percent, while returning capital to shareholders through an attractive dividend," said Ryan Lance, chairman and CEO. "We are delivering on these goals, including a recent dividend increase of 5.8 percent, and are positioned for continued growth in volumes, margins and cash flow.
"Operational and financial performance was very strong in the second quarter," added Lance. "We continue to grow in our North American unconventional plays, while progressing our major projects. We expect to complete our major turnarounds in the third quarter and maintain a high level of both conventional and unconventional exploration activity. All of this positions us for strong momentum as we exit the year."
Operations Update:
Lower 48 - Production for the quarter was 540 thousand barrels of oil equivalent per day (MBOED), an increase of 49 MBOED compared with the same period a year ago. Growth exceeded decline and downtime, and came primarily from the liquids-rich unconventional plays. The Eagle Ford and Bakken collectively delivered 208 MBOED for the quarter, a 38 percent increase compared with the second quarter of 2013.
Canada - Quarterly production increased by 13 MBOED over the same period in 2013, to 284 MBOED. This increase was primarily due to improved well performance in western Canada, increased production from Christina Lake Phase E and less downtime in the second quarter of 2014, partially offset by normal field decline in western Canada conventional assets. Strong FCCL performance increased oil sands production by 28 percent compared with the second quarter of 2013. The oil sands expansion projects continue with first production from Foster Creek Phase F expected in the fourth quarter of 2014. Preparations are underway at Surmont for a turnaround in the third quarter of 2014 and Surmont 2 remains on track for first steam in mid-2015.
Alaska - Second-quarter production was 193 MBOED, a decrease of 4 MBOED compared with the same period in 2013. The winter construction season was completed as planned with the Alpine West CD5 and the Kuparuk Drill Site 2S projects progressing on schedule. In an effort to increase production, and as part of the increasing investment in Alaska, ConocoPhillips signed a contract to build a new rotary drilling rig for the Kuparuk River Unit with drilling expected to commence in early 2016. During the quarter, the Kenai liquefied natural gas (LNG) facility also resumed exports.
Europe - Quarterly production was 213 MBOED, an increase of 40 MBOED compared with the same period a year ago. The increase was primarily the result of major project ramp ups and less downtime, partially offset by normal field decline. The turnaround at J-Area was completed on schedule, with additional turnarounds planned in the United Kingdom during the third quarter. Final commissioning was completed at East Irish Sea and commissioning activities are underway at Britannia Long-Term Compression in preparation for project startup, expected in the third quarter of 2014. At Eldfisk II, sail away and installation of the topsides was completed during the quarter, with the project on track for first production in early 2015.
Asia Pacific and Middle East - Second-quarter production was 322 MBOED, in line with the second quarter of 2013. In Malaysia, the floating production system at the Gumusut Field progressed toward first oil, expected in the third quarter of 2014, and sail away and installation of the Kebabangan topsides was completed with project startup expected in the fourth quarter of 2014. Progress also continues at APLNG as completion reached approximately 75 percent at the end of the second quarter of 2014.
Other International - Production from continuing operations, excluding Libya, was 4 MBOED in the second quarter, essentially flat compared with the same period in 2013. Libya production remained shut in as a result of the Es Sider Terminal shutdown. In July 2014, the company completed the sale of its interest in the upstream affiliates of its Nigerian business and transferred its interest in Brass LNG to the remaining shareholders. Operations related to Nigeria have been reported as discontinued operations.
Unconventional exploration - Unconventional exploration activity remains focused on drilling in the Niobrara and Permian in the Lower 48. Activity also continues in the Duvernay and Montney in Canada and in Poland. In Colombia, exploration drilling is expected to commence with drilling in the VMM-3 block in the third quarter of 2014.
Second-Quarter Review:
Production from continuing operations, excluding Libya, for the second quarter of 2014 was 1,556 MBOED, an increase of 95 MBOED compared with the same period a year ago, reflecting 35 MBOED lower downtime in the second quarter of 2014 and 60 MBOED, or 4 percent, net organic growth. This increase was primarily due to new production from development programs and major projects, partially offset by normal field decline.
Adjusted earnings improved compared with second-quarter 2013 primarily due to higher realized prices and volumes, partially offset by higher depreciation and operating costs associated with new production, as well as higher corporate expenses. The company's total realized price was $70.17 per barrel of oil equivalent (BOE), compared with $66.82 per BOE in the second quarter of 2013, reflecting higher average realized prices across all products.
For the quarter, ConocoPhillips generated $4.24 billion in cash from operations, excluding working capital. Cash provided by continuing operating activities was $3.56 billion, reflecting a $0.68 billion increase in working capital. The company funded $4.2 billion in capital expenditures and investments for continuing operations and paid dividends of $0.9 billion.
