The FINANCIAL — ConocoPhillips on July 27 reported a second-quarter 2017 loss of $3.4 billion, or ($2.78) per share, compared with a second-quarter 2016 loss of $1.1 billion, or ($0.86) per share.
Excluding special items, second-quarter 2017 adjusted earnings were $0.2 billion, or $0.14 per share, compared with a second-quarter 2016 adjusted loss of $1.0 billion, or ($0.79) per share. Special items for the current quarter were primarily driven by a non-cash impairment of APLNG, non-cash impairments from the previously announced San Juan and Barnett dispositions, and premiums on early debt retirement, partially offset by gains from the previously announced Canada disposition, according to ConocoPhillips.
Summary
Cash provided by operating activities exceeded capital expenditures and dividends for the fourth consecutive quarter.
Achieved second-quarter production excluding Libya of 1,425 MBOED; 3 percent year-over-year underlying production growth when excluding the impact of closed and signed dispositions. Increasing full-year underlying production, while also lowering capital expenditures guidance.
Closed Canada transaction, announced San Juan and Barnett asset dispositions for total consideration of up to $3.3 billion, and signed an agreement in July for the sale of Panhandle. Expect over $16 billion of dispositions during 2017.
Strengthened balance sheet through $3.0 billion of early debt retirement in the second quarter and a further $2.4 billion debt committed to be retired in the third quarter; expect year-end debt of less than $20 billion.
Repurchased $1.0 billion in shares during the quarter, with ending share count reduced by 2% from the first quarter. On track for $3 billion in share repurchases in 2017.
Executed second-quarter turnaround activity in Malaysia, Alaska, Europe, Australia and Canada; activity ongoing in the third quarter.
Reduced year-over-year production and operating expenses by 8 percent and adjusted operating costs by 13 percent.
Improved full-year outlook for capital expenditures, production, and depreciation expense guidance.
“This quarter highlights the significant progress we’ve made in transforming our company. In just six months we’ve exceeded the three-year plan we laid out in late 2016. We’ve reset our portfolio through strategic dispositions that generated substantial proceeds, allowing us to accelerate key financial and operational priorities,” said Ryan Lance, chairman and chief executive officer. “We are on track to far surpass our initial debt reduction and shareholder payout targets, while accelerating strong underlying financial and operational performance. We remain focused on lowering our breakeven price for the business, generating free cash flow and delivering strong per-share growth with improving returns through the price cycles. This is the right approach for value creation in the upstream sector, especially at a time of uncertainty in the commodity markets.”
Second-Quarter Review
Production excluding Libya for the second quarter of 2017 was 1,425 thousand barrels of oil equivalent per day (MBOED), a decrease of 121 MBOED compared with the same period a year ago. Excluding dispositions, underlying production increased from ramp up from several major projects, multiple development programs and improved well performance, which more than offset normal field decline. Excluding the second-quarter impact from closed and signed dispositions of 278 MBOED in 2017 and 429 MBOED in 2016, underlying production increased 30 MBOED, or 3 percent.
In the Lower 48, 12 operated drilling rigs were running in the Eagle Ford, Bakken and Permian. Appraisal activity continues in Canada at Blueberry-Montney. In Alaska, construction activity was completed at GMT 1 and the 1H NEWS drill site facilities are ready for startup. Project work progressed in Europe, with the Aasta Hansteen spar structure arriving in Norway. In Malaysia, additional wells were brought on line at Malikai. In Australia, the 90-day operational phase of the APLNG two-train lenders’ test is complete, with 60 LNG cargos loaded during the first half of the year, and the Barossa-6 appraisal well showed positive results. Turnarounds were successfully completed on KBB, Malikai and APLNG, and in the United Kingdom, Norway, the Western North Slope and Canada. Production from Libya was 12 MBOED.
Earnings were lower compared with the second quarter of 2016 due to non-cash impairments of APLNG, primarily driven by reduced price forecasts, and the previously announced San Juan and Barnett dispositions, partially offset by gains from the previously announced Canada disposition, higher realized prices, lower depreciation expense and lower exploration expenses. Adjusted earnings improved compared with second-quarter 2016 primarily due to higher realized prices, lower depreciation expense from dispositions as well as positive price- and performance-related reserve revisions, and lower exploration expenses. The company’s total realized price was $36.08 per barrel of oil equivalent (BOE), compared with $27.79 per BOE in the second quarter of 2016, reflecting higher average realized prices across all commodities.
For the quarter, cash provided by operating activities was $1.75 billion. Excluding a $0.11 billion change in operating working capital, ConocoPhillips generated $1.64 billion in cash from operations and received proceeds from asset dispositions of $10.7 billion. The company funded $1.0 billion in capital expenditures and investments, paid dividends of $0.3 billion, paid $3.2 billion to reduce debt, purchased $2.5 billion in short-term investments and repurchased $1.0 billion of company common stock.
Six-Month Review
ConocoPhillips’ six-month 2017 earnings were a loss of $2.9 billion, or ($2.30) per share, compared with a six-month 2016 loss of $2.5 billion, or ($2.04) per share. Six-month 2017 adjusted earnings were $1 million, or $0.00 per share, compared with a six-month 2016 adjusted loss of $2.2 billion, or ($1.74) per share.
Production excluding Libya for the first six months of 2017 was 1,503 MBOED, compared with 1,562 MBOED for the same period in 2016. Excluding the impact of dispositions, underlying production increased from new production from major projects, development programs and improved well performance, which more than offset normal field decline. Excluding the six-month impact from closed and signed dispositions of 343 MBOED in 2017 and 433 MBOED in 2016, underlying production increased 31 MBOED, or 3 percent.
The company’s total realized price during this period was $36.13 per BOE, compared with $25.31 per BOE in the first six months of 2016. This reflected higher average realized prices across all commodities.
In the first half of 2017, cash provided by operating activities was $3.54 billion. Excluding a $0.07 billion change in operating working capital, ConocoPhillips generated $3.47 billion in cash from operations and received proceeds from asset dispositions of $10.7 billion. The company funded $2.0 billion in capital expenditures and investments, paid dividends of $0.7 billion, paid $4.1 billion to reduce debt, purchased $2.7 billion in short-term investments and repurchased company common stock of $1.1 billion.
Outlook
Third-quarter 2017 production is expected to be 1,170 to 1,210 MBOED, which excludes Libya and reflects expected impacts from the San Juan, Barnett and Panhandle dispositions. The company’s full-year production on the same basis is expected to be 1,340 to 1,370 MBOED.
Full-year guidance for capital expenditures has been lowered to $4.8 billion.
Full-year guidance for depreciation, depletion and amortization has been decreased to $7.0 billion, reflecting the impact of asset sales and decreased expense associated with price- and performance-related positive reserve revisions. Corporate segment net expense guidance is $1.3 billion, decreased to $1.0 billion on an adjusted basis, reflecting tax impacts following the announced dispositions and lower interest expense from early debt retirement.
Production and operating expenses are expected to be $5.0 billion, which results in adjusted operating costs of $5.7 billion, reflecting the impact of asset sales. Dry hole expense guidance is $400 million, which results in adjusted dry hole and leasehold impairment expense of $450 million.
The company expects to reduce debt to less than $20 billion by year-end 2017, and expects full-year share repurchases of $3 billion with accelerating production growth on a per-share basis.
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