ConocoPhillips — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2015. The interim financial statements are unaudited. ConocoPhillips is a global independent exploration and production company operating in 25 countries; Nigeria is reported as discontinued operations.
Key financial and operating metrics
Amounts are in millions of dollars unless otherwise noted.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Sales and operating revenues | $7,262 | $12,080 | $23,271 | $41,316 |
| Income (loss) from continuing operations | $(1,056) | $1,649 | $(934) | $5,831 |
| Net income (loss) attributable to ConocoPhillips | $(1,071) | $2,704 | $(978) | $6,908 |
| Diluted continuing-operations EPS | $(0.87) | $1.31 | $(0.80) | $4.63 |
| Dividends per share | $0.74 | $0.73 | $2.20 | $2.11 |
- Revenue declined 40% in Q3 and 44% for the nine-month period, mainly due to lower commodity prices. Brent averaged $50.26/barrel in Q3, down 51% year over year; Henry Hub averaged $2.77/MMBtu, down 32%.
- Average production was 1,554 thousand barrels of oil equivalent per day (MBOED) in Q3, up from 1,481 MBOED. Total realized price was $32.91/BOE, down 49% year over year. The filing does not provide a clear consolidated operating-margin figure.
- Nine-month operating cash flow was $5,976, down from $13,601 in 2014. Capital expenditures and investments were $7,913; dividends paid were $2,741. Investing outflows exceeded operating cash flow, and cash declined by $2,649 to $2,413.
- At September 30, total debt was $24,891, versus $22,565 at year-end 2014; debt to total capital was 36%, versus 30%. Total equity was $44,555. Current assets of $9,664 and current liabilities of $8,287 imply a current ratio of approximately 1.17.
- The company reported a $5,157 comprehensive loss for the nine months, including $4,451 of after-tax foreign-currency translation losses, chiefly reflecting a stronger U.S. dollar.
Material changes versus comparable periods
- Continuing operations moved from profit to loss in Q3 and the first nine months of 2015, primarily because of lower oil, gas, bitumen and NGL prices. 2014 net income also included Nigeria discontinued-operations income of $1,078 in Q3 and $1,131 for the nine-month period; there was none in 2015.
- Exploration expense rose to $1,061 in Q3 from $459, and to $2,092 for nine months from $1,272. Q3 included $383 of Gulf of Mexico drillship termination-related costs and $240 of Gulf of Mexico lease impairments, among other exploration charges.
- Nine-month DD&A increased to $6,731 from $6,058, partly due to higher production and lower reserve-price assumptions. Production and operating expense fell to $5,434 from $5,966 for nine months, while interest and debt expense rose to $652 from $475.
- Production increased despite weaker pricing: Q3 output was up about 5% overall, with company commentary citing 4% year-over-year growth excluding Libya, downtime and dispositions. Growth reflected new developments and improved well performance.
Outlook, management commentary, risks and unusual items
- Management targeted cash-flow neutrality in 2017, defined as continuing operating cash flow sufficient to fund the dividend and capital program. It cited capital flexibility, portfolio optimization and sustainable cost reductions as priorities.
- 2015 capital-spending guidance was reduced to $10.2 billion from initial guidance of $11.5 billion. Full-year production guidance was 1,585–1,595 MBOED; Q4 guidance was 1,585–1,625 MBOED. Management expected 3%–4% full-year production growth excluding Libya and said it expected to exceed its production target.
- The company targeted a $1 billion reduction in operating costs in 2016 versus 2014, and expected $1–$2 billion of 2015 asset-sale proceeds. It anticipated a $150–$250 million tax benefit in Q4 2015 from planned U.S. tax refund claims; the claims remained under analysis.
- Management expected year-end 2014 proved reserves to decline approximately 5% due to lower prices and forecast an organic reserve replacement ratio significantly below 100%. Further unproved-property impairments were considered reasonably likely and could materially affect results in the period recognized.
- Cash and cash equivalents were $2,413. The company reported $6.2 billion of available borrowing capacity under its $7.0 billion revolving credit facility, with $803 million of Qatar Funding commercial paper outstanding. Moody’s downgraded its senior debt rating to A2 in August; S&P affirmed A with a negative outlook in October.
- Notable commitments include a $3.1 billion maximum exposure under ConocoPhillips’ pro-rata APLNG completion guarantee at quarter-end, and a Phillips 66 supply-agreement guarantee with a maximum potential liability of $1.6 billion, substantially offset by an indemnification from Phillips 66. The company also disclosed $286 million of environmental accruals and ongoing legal, environmental and international-arbitration matters, including claims involving Venezuela and Ecuador.
- After quarter-end, the company agreed to sell certain western Canada properties and certain Texas and Louisiana gas properties; both transactions were expected to close in late 2015 or early 2016.
- Key risks include commodity-price volatility, production and reserve replacement, exploration outcomes, project execution, political disruption, environmental and climate regulation, litigation, access to capital, and asset-sale execution. Management stated known contingency exposures were not expected to have a material adverse effect based on information then available.
Most important facts for investors to verify
- Whether production and asset-sale proceeds meet guidance, and whether the reduced capital plan supports the 2017 cash-flow-neutrality target.
- The sustainability of the $0.74 quarterly dividend relative to operating cash flow, capital spending and debt levels.
- Commodity-price assumptions, realized-price trends, reserve revisions and the scale of future impairments or exploration charges.
- Progress and remaining exposure under the APLNG completion guarantee, plus the collectability and terms of the Phillips 66 indemnification.
- The timing and outcome of expected tax refunds, asset dispositions, and material legal, environmental and international arbitration proceedings.