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ConocoPhillips (COP - Analyst Report) reported first quarter 2013 adjusted earnings of $1.42 per share, surpassing the Zacks Consensus Estimate by a penny and increasing almost 3% from the year-earlier profit of $1.38. The year-over-year growth was mainly attributable to production from new development programs as well as upstream ventures from key projects associated with higher production in China and Libya.

Revenues in the reported quarter decreased to $14,651.0 million from the year-ago level of $16,083.0 million but comfortably surpassed our projection of $13,081.0 million.

Exploration and Production

Daily production averaged 1.596 million barrels of oil equivalent (MMBOE) in the quarter, down 2.5% from 1.637 MMBOE in the year-ago quarter. The decline was mainly due to the natural decline in fields and downtime.

Price Realization

Overall price realization dropped 3.1% to $68.57 per BOE from $70.78 per BOE in the first quarter of 2012.

Average realized price for oil was $105.97 per barrel compared with $111.88 in the year-earlier quarter. Natural gas liquids (NGL) were sold at $42.95 per barrel, reflecting a decrease of 22% from the year-ago level of $55.03 per barrel. The price for natural gas was $5.84 per thousand cubic feet (Mcf) versus $5.61 in first quarter 2012, reflecting an increase of 4.1%. The company’s bitumen prices tumbled 35.3% year over year to $39.23 per barrel.

Financials

At the end of the first quarter, ConocoPhillips generated $4.6 billion in cash from continuing operating activities (excluding working capital). As of Mar 31, 2013, the company had total cash and cash equivalents of $5.4 billion and $21.7 billion in debt, with a debt-to-capitalization ratio of 31%.

ConocoPhillips also paid $0.8 billion in dividends and incurred $3.6 billion in capital expenditures during the quarter.

Asset Sale Program

The company generated $1.1 billion in proceeds from asset sales and expects to raise an additional $8.5 billion from the disposition program by mid-2013.

Guidance

For the second quarter of 2013, daily production is expected in the band of 1,440–1,470 thousand barrels of oil equivalent (MBOE). For full-year 2013, production has been revised to 1,485–1,520 MBOE from the earlier estimate of 1,475–1,525 MBOE per day range.

The ongoing ramp-up in major North American programs, mainly in the Eagle Ford and oil sands continue to contribute favorably to production.

The company also remains on track to deliver average annual production as well as margin growth of 3% to 5%, as it focuses on liquid-rich ventures primarily in the U.S. and Canada.

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.

Again, ConocoPhillips completed the spin-off of its refining/sales business into a separate, independent and publicly traded company, Phillips 66 (PSX - Snapshot Report) in 2012. With this, ConocoPhillips shifted its total focus to upstream operations and thus oil and gas prices play a major role in determining its performance.

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

We have a Zacks Rank #3 Rank (Hold) for ConocoPhillips. However, Zacks Ranked #1 Range Resources Corporation (RRC - Analyst Report) and EPL Oil & Gas, Inc (EPL - Snapshot Report) are expected to outperform the market over the next few months.
 

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