ConocoPhillips’ Revenue Dips As Oil Market Remains Volatile

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ConocoPhillipsConocoPhillips (NYSE:COP) announced its third quarter earnings for 2014. The company reported revenues of $12.1 billion, which declined by nearly 11.45% relative to the revenues reported during the corresponding period of last year. Despite the better product mix and expansion in production, ConocoPhillips registered a decrease in its revenue owing to oil price volatility in the international markets.

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However, this year on year decrease in revenue did not translate into lower earnings for the company. Earnings for the company amounted to $2.7 billion, up by 8% from last year’s third quarter when earnings were reported at $2.5 billion. Earnings per share amounted to $2.17; 8.5% higher than the $2 earnings per share that were reported in the year ago quarter. Adjusted earnings for the company amounted to $1.6 billion, or $1.29 per share. These were 11% and 12.2% lower respectively, relative to the adjusted results reported in the previous year. ConocoPhillips managed to beat analysts’ estimates for earnings per share of $1.20.

The company reported a 25% increase in production from continuing operations, excluding Libya. The company cited the reason for lower adjusted earnings as the decline in realized prices and higher operating costs, but added that these were offset by the increases in volumes.

Net margin for the company was calculated at approximately 23% for the quarter. Cash from continuing operating activities amounted to $4.15 billion.

Outlook for 2014

The company reported that it is on track to achieve its volume and margin growth targets of 3%-5% for the current year. Total production for the year, excluding operations from Libya is expected to amount to 1,525-1,535 million barrels of oil equivalent per day. The total production guidance for the fourth quarter is expected at 1,545-1,575 million barrels of oil equivalent per day.

Analysis of earnings

As the behemoth cited better product mix and ramping up of production as the reason for higher earnings during the quarter, it is important to note that a portion of the increase can also be attributed to the sale of the company’s Nigerian business. The sale of the Nigerian business accounted for nearly 87 cents of the earnings per share announced in the recently concluded quarter. This sale was a move made as part of the initiative to shed low margin assets in order to direct capital towards more lucrative projects like the Eagle Ford and Bakken formation. According to IEA, these regions hold nearly 3.4 billion barrels and 3.2 billion barrels of proved oil reserves. ConocoPhillips was able to increase output from these regions by nearly 33% in the recently concluded quarter. Based on these estimates, the move towards investing in these projects seems logical and enhances the long term growth prospects of ConocoPhillips.

In addition to this, the company has announced a dividend of $0.73 per share for the recently concluded quarter, which is a 5.8% increase in the dividend of $0.69 that the company had announced in its results posted at the end of July.

Oil price volatility likely to continue

Oil price volatility is a major concern for ConocoPhillips as it is for other producers operating in the volatile market. This can be noted from the fact that average realized price per barrel of oil equivalent was $64.78 for the recently concluded quarter. This was 7% lower annually and 7.7% lower sequentially, indicating that the company’s revenues have in fact dropped as a result of lower average realized prices.

That being said, the oil market shows no signs of recovering as the IEA recently lowered its oil demand forecast for the current year by nearly 22%, while also slashing forecasts for the next year as well. The agency noted that the oversupply situation in the oil market, coupled with the slowdown in growth of countries like China are exerting downward pressure on oil prices in the international market. As OPEC countries show no signs of reducing their oil supply, OPEC members have tried to restore investor confidence by assuring investors that they need not panic over the recent drop in oil prices. Though this did lead to a slight recovery in the futures prices for contracts in December, OPEC members are to meet on November 27th to discuss the oil market situation. Although the outcome of this meeting is uncertain, it is expected that OPEC will not cut its 30 million barrels per day of crude oil ceiling.

ConocoPhillips reacts

In the wake of the alarming decline in oil prices, and expectations that this decline is likely to continue, ConocoPhillips became the first oil company to announce a cut in its capital expenditure. The company has noted the low profitability of drilling in its emerging North American fields, which has compelled it to take such a step. The company aims at reducing annual spending to lower than $16 billion and plans on scaling back operations in oil regions like West Texas and Rocky Mountains. There is also a possibility that the company will also scale back its exploration spending as well.

Conclusion

From the analysis of the recent results reported, there is no doubt about the fact that oil price volatility has had an impact on the revenue generation and profitability of the company. However, despite the drop in oil prices, ConocoPhillips seems to be doing fairly well as it has been able to manage the situation and still beat analyst estimates with its high earnings per share, and the increase its dividend for the quarter.

Share prices for ConocoPhillips’ stock have remained volatile over the course of the past 12 months. Share prices have dipped from $86.11 as at July 1, 2014 to a low of $66.20 on October 14, 2014. Share prices have recovered since then and are hovering around the $72 mark. Analysts estimate that the one year target for share prices is $87.89. The share currently trades at about 9.78 times its earnings, offering investors an attractive 4% dividend yield.

The fundamentals of the company seem fairly reasonable to compel investors seeking long term growth to invest in ConocoPhillips for the time being. Coupled with the future growth prospects, the high dividend yield is another plus point that encourages investors to invest in the shares. After analyzing the share price trends, the recent earnings announcements, and the future strategy for ConocoPhillips, investors who are in search of growth in the future along with current income from their investment would benefit from investing in these shares.

Babatunde Akinsola
Babatunde Akinsolahttps://naija247news.com
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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