ConocoPhillips (NYSE: COP) today reported a second-quarter 2016
net loss of $1.1 billion, or ($0.86) per share, compared with a
second-quarter 2015 net loss of $179 million, or ($0.15) per share.
Excluding special items, second-quarter 2016 adjusted earnings were
a net loss of $985 million, or ($0.79) per share, compared with
second-quarter 2015 adjusted earnings of $81 million, or $0.07 per
share. Special items for the current quarter were related to
non-cash impairments in the Lower 48, primarily in the Gulf of
Mexico; pension settlement expense; deferred tax adjustments; and a
gain on an asset sale.
Summary
- Exceeded second-quarter guidance with
production of 1,546 MBOED; increasing full-year guidance.
- Lowering 2016 capital expenditures
guidance from $5.7 billion to $5.5 billion.
- Improved production and operating
expenses by 20 percent year over year; improved adjusted operating
costs by 18 percent year over year; lowering full-year adjusted
operating cost guidance.
- Safely executed second-quarter major
turnaround activity in Europe and Alaska; activity ongoing in the
third quarter.
- Achieved first production at Foster
Creek Phase G in Canada; Surmont production restored to prior
quarter levels after wildfires.
- On track for first cargo from APLNG
Train 2 in Australia and first production from Alder in Europe in
the fourth quarter of 2016.
- Lowered debt by $0.8 billion.
- Completed non-core asset sales of $0.2
billion, bringing the six-month 2016 total to $0.4 billion; signed
a sale and purchase agreement for exploration blocks offshore
Senegal in July.
“The price environment remains challenging, but our business is
running well and we continue to beat our production, capital
expenditures and operating cost targets,” said Ryan Lance, chairman
and chief executive officer. “During the quarter, we successfully
completed significant turnaround activity and saw strong
performance across the portfolio, which enabled us to improve our
full-year guidance for production, capital expenditures and
adjusted operating costs. We are continuing to ramp up production
from our APLNG and Surmont projects, and achieved first production
at Foster Creek Phase G in Canada. Our financial position improved
as we reduced our debt by $0.8 billion and generated asset sale
proceeds of $0.2 billion, remaining on track for about $1 billion
of asset sale proceeds this year. We remain focused on successfully
executing our operating plan, lowering the breakeven price of the
business and positioning for strong momentum as prices
recover.”
Second-Quarter Review
Production for the second quarter of 2016 was 1,546 thousand
barrels of oil equivalent per day (MBOED), a decrease of 49 MBOED
compared with the same period a year ago. The decrease was the
result of normal field decline, dispositions, planned downtime and
the impact of wildfires in Canada, partly offset by growth from
major projects and development programs and improved well
performance. When adjusted for 95 MBOED from dispositions and
downtime, production increased 46 MBOED, or 3 percent.
For the quarter, operational performance was strong across the
portfolio. The company safely progressed several major turnarounds
in Europe and Alaska, which will continue in the third quarter. The
Lower 48 delivered strong production, primarily from the
unconventionals, and there were positive results from the
Shenandoah 5 appraisal well in the Gulf of Mexico. CD5 and Drill
Site 2S in Alaska continue to perform well, with an additional
phase approved at CD5. By the end of June, Surmont production was
restored to first-quarter levels after the wildfires and first
production was achieved with the commissioning of Foster Creek
Phase G. Production began to ramp up from Kebabangan in Malaysia
and the APLNG project in Australia continued to operate above
expectations, with Train 2 expected to start up in the fourth
quarter of 2016.
The company progressed its phased exit from deepwater
exploration with the signing of a sale and purchase agreement for
three exploration blocks offshore Senegal in July. The company also
recorded a dry hole and leasehold impairment at the Gibson and
Tiber prospects in the Gulf of Mexico.
Adjusted earnings were lower compared with second-quarter 2015
primarily due to lower realized prices. The company’s total
realized price was $27.79 per barrel of oil equivalent (BOE),
compared with $39.06 per BOE in the second quarter of 2015,
reflecting lower average realized prices across all
commodities.
For the quarter, cash provided by operating activities was $1.26
billion. Excluding a change in operating working capital,
ConocoPhillips generated $1.23 billion in cash from operations and
received proceeds from asset dispositions of $0.2 billion. The
company funded $1.1 billion in capital expenditures and
investments, and paid dividends of $0.3 billion. Additionally, the
company repaid debt of $0.8 billion and purchased $1.0 billion in
short-term investments.
Six-Month Review
ConocoPhillips’ six-month 2016 earnings were a net loss of $2.5
billion, or ($2.04) per share, compared with six-month 2015
earnings of $93 million, or $0.07 per share. Six-month 2016
adjusted earnings were a net loss of $2.2 billion, or ($1.74) per
share, compared with a six-month 2015 adjusted net loss of $141
million, or ($0.11) per share.
Production for the first six months of 2016 was 1,562 MBOED,
compared with 1,603 MBOED for the same period in 2015. Production
decreased due to normal field decline and dispositions, partly
offset by new production from major projects and development
programs.
The company’s total realized price during this period was $25.31
per BOE, compared with $37.99 per BOE in the first six months of
2015. This reflected lower average realized prices across all
commodities.
In the first half of 2016, cash provided by operating activities
was $1.7 billion. Excluding a $0.2 billion change in operating
working capital, ConocoPhillips generated $1.9 billion in cash from
operations and received proceeds from asset dispositions of $0.4
billion. The company funded $3.0 billion in capital expenditures
and investments, and paid dividends of $0.6 billion. Additionally,
the company increased debt by $3.8 billion and purchased $1.3
billion in short-term investments.
Outlook
The company is increasing its full-year 2016 production guidance
to 1,540 to 1,570 MBOED, reflecting strong year-to-date performance
across most of the portfolio. Third-quarter 2016 production
guidance is 1,510 to 1,550 MBOED, which reflects significant
planned turnaround activity during the quarter.
Guidance for production and operating expenses is expected to be
$5.8 billion, which results in improved adjusted operating costs of
$6.8 billion versus prior guidance of $7.0 billion. The company
entered into an agreement to terminate its final Gulf of Mexico
drillship contract for approximately $140 million before tax, which
is expected to be recorded in the third quarter as a special
item.
Guidance for capital expenditures has been lowered to $5.5
billion versus prior guidance of $5.7 billion. Depreciation,
depletion and amortization guidance has been increased to $9.2
billion for the full year as a result of increased volumes and
increased expense associated with price-related reserve revisions.
The company’s other guidance items remain unchanged, with corporate
segment net expense of $1.0 billion and exploration dry hole and
leasehold impairment expense of $0.8 billion.
ConocoPhillips will host a conference call today at 12:00 p.m.
EDT to discuss this announcement. To listen to the call, as well as
view related presentation materials and supplemental information,
go to www.conocophillips.com/investor.
--- # # # ---
About ConocoPhillips
ConocoPhillips is the world’s largest independent E&P
company based on production and proved reserves. Headquartered in
Houston, Texas, ConocoPhillips had operations and activities in 20
countries, $21 billion in annualized revenue, $96 billion of total
assets, and approximately 15,400 employees as of June 30, 2016.
Production averaged 1,562 MBOED for the six months ended June 30,
2016, and proved reserves were 8.2 billion BOE as of Dec. 31, 2015.
For more information, go to www.conocophillips.com.
CAUTIONARY STATEMENT FOR THE PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This news release contains forward-looking statements.
Forward-looking statements relate to future events and anticipated
results of operations, business strategies, and other aspects of
our operations or operating results. In many cases you can identify
forward-looking statements by terminology such as "anticipate,"
"estimate," "believe," "continue," "could," "intend," "may,"
"plan," "potential," "predict," "should," "will," "expect,"
"objective," "projection," "forecast," "goal," "guidance,"
"outlook," "effort," "target" and other similar words. However, the
absence of these words does not mean that the statements are not
forward-looking. Where, in any forward-looking statement, the
company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed
to have a reasonable basis. However, there can be no assurance that
such expectation or belief will result or be achieved. The actual
results of operations can and will be affected by a variety of
risks and other matters including, but not limited to, changes in
commodity prices; changes in expected levels of oil and gas
reserves or production; operating hazards, drilling risks,
unsuccessful exploratory activities; difficulties in developing new
products and manufacturing processes; unexpected cost increases;
international monetary conditions; potential liability for remedial
actions under existing or future environmental regulations;
potential liability resulting from pending or future litigation;
limited access to capital or significantly higher cost of capital
related to illiquidity or uncertainty in the domestic or
international financial markets; and general domestic and
international economic and political conditions; as well as changes
in tax, environmental and other laws applicable to our business.
Other factors that could cause actual results to differ materially
from those described in the forward-looking statements include
other economic, business, competitive and/or regulatory factors
affecting our business generally as set forth in our filings with
the Securities and Exchange Commission. Unless legally required,
ConocoPhillips undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Use of Non-GAAP Financial Information – To supplement the
presentation of the Company’s financial results prepared in
accordance with U.S. generally accepted accounting principles
(GAAP), this news release and the accompanying supplemental
financial information contain certain financial measures that are
not prepared in accordance with GAAP, including adjusted earnings
(calculated on a consolidated and on a segment-level basis),
adjusted earnings per share, adjusted dry hole and leasehold
impairment, adjusted corporate and other earnings, operating costs
and adjusted operating costs. Operating costs is defined by the
Company as the sum of production and operation expenses, selling,
general and administrative expenses, and exploration general and
administrative expenses, geological and geophysical and other
expenses. Adjusted operating costs is defined as the Company’s
operating costs further adjusted to exclude expenses that are
included as adjustments to adjusted earnings to the extent those
adjustments impact production and operating expenses, selling,
general and administrative expenses, and exploration general and
administrative expenses, geological and geophysical and other
expenses.
The Company believes that the non-GAAP measures adjusted
earnings (both on an aggregate and a per share basis), operating
costs and adjusted operating costs, adjusted dry hole and leasehold
impairment, and adjusted corporate and other earnings are useful to
investors to help facilitate comparisons of the Company’s operating
performance and controllable costs associated with the Company’s
core business operations across periods on a consistent basis and
with the performance and cost structures of peer companies in a
manner that, when viewed in combination with the Company’s results
prepared in accordance with GAAP, provides a more complete
understanding of the factors and trends affecting the Company’s
business and performance. The Company further believes that the
non-GAAP measure adjusted operating costs provides a more
indicative measure of the Company’s underlying, controllable costs
of operations by excluding other items that do not directly relate
to the Company’s core business operations. The Company’s Board of
Directors and management also use these non-GAAP measures to
analyze the Company’s operating performance across periods when
overseeing and managing the Company’s business.
Each of the non-GAAP measures included in this news release and
the accompanying supplemental financial information has limitations
as an analytical tool and should not be considered in isolation or
as a substitute for an analysis of the Company’s results calculated
in accordance with GAAP. In addition, because not all companies use
identical calculations, the Company’s presentation of non-GAAP
measures in this news release and the accompanying supplemental
financial information may not be comparable to similarly titled
measures disclosed by other companies, including companies in our
industry. The Company may also change the calculation of any of the
non-GAAP measures included in this news release and the
accompanying supplemental financial information from time to time
in light of its then existing operations to include other
adjustments that may impact its operations.
Reconciliations of each non-GAAP measure presented in this news
release to the most directly comparable financial measure
calculated in accordance with GAAP are included below.
References in the release to earnings refer to net income/(loss)
attributable to ConocoPhillips.
ConocoPhillips Reconciliation
of Earnings to Adjusted Earnings $ Millions, Except as
Indicated
2Q16 2Q15 2016 YTD 2015 YTD
Pre-tax
Incometax
After-tax Pre-tax
Incometax
After-tax Pre-tax
Incometax
After-tax Pre-tax
Incometax
After-tax Earnings $ (1,071 )
(179 ) (2,540 ) 93 Adjustments:
Impairments 246 (87 ) 159 275 (135 ) 140 631 (240 ) 391 275 (135 )
140 Pension settlement expense 45 (14 ) 31 52 (14 ) 38 128 (39 ) 89
52 (14 ) 38 International tax law changes - - - - 129 129 - - - -
(426 ) (426 ) Restructuring - - - 17 (7 ) 10 - - - 121 (50 ) 71 Net
gain on asset sales (56 ) 20 (36 ) (39 ) 10 (29 ) (56 ) 20 (36 )
(39 ) 10 (29 ) Deferred tax adjustment - (68 ) (68 ) - - - - (68 )
(68 ) - - - Tax impact from country exit - -
- - (28 ) (28 ) -
- - - (28 ) (28 )
Adjusted earnings / (loss)
$ (985 ) 81
(2,164 )
(141 ) Earnings (loss) per
share of common stock (dollars)
$ (0.86 )
(0.15 ) (2.04 ) 0.07
Adjusted earnings / (loss) per share of common stock
(dollars)
$ (0.79 ) 0.07 (1.74
) (0.11 )
The income tax effects of the special items are primarily
calculated based on the statutory rate of the jurisdiction in which
the discrete item resides.
ConocoPhillips
Reconciliation of Production and
Operating Expenses to Adjusted Operating Costs
$ Millions, Except as Indicated
2Q16 2Q15
2016YTD
FY 2016Guidance
Production and operating expenses 1,445
1,798 2,799 5,800 Production and operating
expenses - percent reduction -20 % Adjustments:
Selling, general and administrative (G&A) expenses 167 218 353
600 Exploration G&A, G&G and lease rentals
147 147 292
700 Operating costs 1,759 2,163 3,444 7,100 Operating costs
unadjusted - percent reduction -19 % Adjustments to exclude
special items Less restructuring - (17 ) - - Less pension
settlement expense (45 ) (52 ) (128 ) (128 ) Less impairments - -
(36 ) (36 ) Less other costs -
- - (140 )
Adjusted operating
costs 1,714
2,094 3,280 ~6,800
Adjusted operating costs - percent reduction
-18 %
ConocoPhillips Reconciliation of dry hole and leasehold
impairment $ Millions, Except as Indicated
2016YTD
FY 2016Guidance
Dry holes 429 700 Leasehold impairment
394 500 Total 823 1,200
Adjustment to exclude special items Less impairments
(423 ) (423 ) Adjusted dry hole and leasehold
impairment 400 ~800
Impairment adjustments include $371 million of leasehold
impairment expense and $52 million of dry hole expense.
ConocoPhillips Reconciliation of Corporate and
Other earnings $ Millions, Except as Indicated
2016YTD
FY 2016Guidance
Corporate and Other earnings (608 ) (1,100 )
Adjustments to exclude special items Less pension settlement
expense (128 ) (128 ) Less tax on pension settlement expense
39 39 Adjusted
Corporate and Other earnings (519 )
~(1,000
)
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160728005211/en/
ConocoPhillipsDaren Beaudo, 281-293-2073
(media)daren.beaudo@conocophillips.comSidney J. Bassett,
281-293-5000 (investors)sid.bassett@conocophillips.comVladimir R.
dela Cruz, 281-293-5000
(investors)v.r.delacruz@conocophillips.com
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