ConocoPhillips (COP - Analyst Report) reported third quarter 2013 adjusted earnings of $1.47 per share, in line with the Zacks Consensus Estimate and higher than the year-earlier profit of $1.38. The year-over-year growth was mainly attributed to increased volumes, continued portfolio shift to liquids and increased proportion of production in higher-margin areas as well as higher liquids and gas price realization.
Revenues in the reported quarter increased to $15,470.0 million from the year-ago level of $14,713.0 million and comfortably surpassed our projection of $12,451.0 million.
Exploration and Production
Daily production averaged 1.470 million barrels of oil equivalent (MMBOE) in the quarter, flat year-over-year.
Overall price realization was up 6.2% at $69.68 per BOE from $65.62 per BOE in the third quarter of 2012.
Average realized price for oil was $106.74 per barrel compared with $102.72 in the year-earlier quarter. Natural gas liquids (NGL) were sold at $40.47 per barrel, reflecting an increase of 0.2% from the year-ago level of $40.39 per barrel. The price for natural gas was $5.88 per thousand cubic feet (Mcf) versus $5.18 in third quarter 2012, reflecting an increase of 13.5%. The company’s bitumen prices rose from $56.86 per barrel a year ago to $76.06 in the reported quarter.
At the end of the third quarter, ConocoPhillips generated $3.6 billion in cash from continuing operating activities (excluding working capital). As of Sep 30, 2013, the company had total cash and cash equivalents of $3.9 billion and $21.7 billion in debt, with a debt-to-capitalization ratio of 30%.
ConocoPhillips also paid $0.9 billion in dividends and incurred $4.2 billion in capital expenditures during the quarter.
For the fourth quarter of 2013, the company reduced its production outlook by 50 MBOED to reflect the ongoing production disruptions in Libya. For the full year, production has been revised to 1,505–1,515 MBOE from the earlier estimate of 1,515–1,530 MBOE per day.
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.
During the quarter, the company announced its plans to farm out its interest in Kashagan, Algeria and Nigeria businesses. These transactions are expected to generate proceeds of around $8.9 billion.
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 - Analyst Report) in 2012. With this, ConocoPhillips shifted its complete 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 of crude oil and natural gas.
We have a Zacks Rank #3 (Hold) for ConocoPhillips. However, Zacks Ranked #1 TransAtlantic Petroleum Ltd (TAT - Snapshot Report) and Northern Oil and Gas, Inc. (NOG - Snapshot Report) are expected to outperform the market over the next few months.