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Independent oil and gas company, ConocoPhillips (COP - Analyst Report) reported fourth quarter 2013 adjusted earnings of $1.40 per share, beating the Zacks Consensus Estimate of $1.32. However, earnings came below the year-earlier profit of $1.43.

The year-over-year decrease was primarily due to lower realized prices, lower volumes as well as higher depreciation and operating costs associated with new production. This was partially offset by lower overall taxes.

Revenues in the reported quarter decreased to $13,985.0 million from the year-ago level of $16,366.0 million and came below our projection of $15,506.0 million.

Full-year 2013 adjusted earnings came in at $5.70 a share, beating our expectation of $5.66 by 0.7%. It also came above $5.37 recorded in the prior year.  

Total revenue of $58,248 million in 2013 decreased 6.1% year over year and came below the Zacks Consensus Estimate of $61,438 million.

Exploration and Production

Daily production averaged 1.518 million barrels of oil equivalent (MMBOE) in the quarter, down 5.5% from 1.607 MMBOE in the year-ago quarter. The fall resulted from normal field decline, the impact of disruption in Libya and weather-related downtime. This was partly offset by new production from development programs.

Full-year production of 1.545 MMBOE per day decreased 2.1% from the year-earlier production level of 1.578 MMBOE/d.

Price Realization

Lower overall liquids prices partially offset by higher natural gas prices adversely affected the company’s quarterly earnings. Overall price realization dropped 3.6% to $65.41 per BOE from $67.45 per BOE in the fourth quarter of 2012.

Average realized price for oil was $100.61 per barrel compared with $103.08 in the year-earlier quarter. The price for natural gas was $6.02 per thousand cubic feet (Mcf) versus $5.79 realized in fourth quarter 2012. Natural gas liquids (NGL) were sold at $43.82 per barrel, down 18% from the year-ago level of $44.93 per barrel. The company’s bitumen prices tumbled 9.4% year over year to $43.76 per barrel.

Financials

In 2013, ConocoPhillips generated $15.8 billion in cash from continuing operating activities. As of Dec 31, 2013, the company had total cash and cash equivalents of $6.2 billion and $21.7 billion in debt, with a debt-to-capitalization ratio of 29%.

ConocoPhillips also paid $3.3 billion in dividends and incurred $16.3 billion in capital expenditures during 2013.

Guidance

ConocoPhillips expects to deliver 3–5% production growth in 2014. Excluding Libya, the company’s 2014 full-year production outlook remains unchanged at approximately 1,550 MBOED. For the first quarter of 2014, production from continuing operations is expected at 1,490–1,530 MBOED, excluding Libya.

Outlook

With leading positions in both natural gas and heavy crude oil in North America, as well as a legacy position in the North Sea and growing exposure to lucrative international regions, ConocoPhillips expects to replace reserves and sustain production growth over the long term. ConocoPhillips' exploration initiatives toward liquids-rich plays are gaining momentum through the Eagle Ford, Bakken and North Barnett shale plays.

We believe that any downtrend in the global economy will affect the supply-demand fundamentals of oil and gas, hurting the sales prices of crude oil and natural gas.

ConocoPhillips currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the energy sector like Swift Energy Co. (SFY - Snapshot Report), CVR Energy, Inc. (CVI - Snapshot Report) and Profire Energy, Inc. (PFIE). All the stocks sport a Zacks Rank #1 (Strong Buy).

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