COP Stock: ConocoPhillips ISN’T Doomed After All!

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The latest quarter for independent energy producer ConocoPhillips (COP), as we predicted, came in at a loss. Like many in the oil patch, “lower for longer” crude oil prices continue to wreak havoc on ConocoPhillips and COP stock.

COP Stock: ConocoPhillips ISN'T Doomed After All!After all, when your main business is selling a commodity or derivatives of said commodity, the underlying price of that natural resource is ultimately what matters.

But for investors in COP stock, there was a ray of sunshine.

While the loss was heavy, it was better than expected when looking at adjusted earnings. And that might just signal that ConocoPhillips is finally moving on the right track in righting the ship.

ConocoPhillips Latest Round of Loses

Oil prices have plagued COP since spinning off refining arm Phillips 66 (PSX).

This quarter was more of the same.

Oil prices have only fallen further during the first three months of the year. That was reflected in ConocoPhillips’ average selling price for crude oil and natural gas. COP’s total realized price was $22.94 per barrel of oil equivalent (BOE) for the last quarter. This compares to a price of $36.92 per BOE in the first quarter of 2015. That was also lower than what it earned per barrel in the fourth quarter of 2015.

And naturally, ConocoPhillips saw less money coming into its coffers. This quarter, COP lost a hefty $1.5 billion, or about $1.18 per share.

With that in mind, ConocoPhillips saw less money coming into its coffers.

This quarter, COP lost a hefty $1.5 billion or around $1.18 per share. Total revenues and other income managed to sink 37% to land at $5.02 billion. Last year at this time, it was still profitable.

However, when looking at non-GAAP earnings, things weren’t as bad for ConocoPhillips. Losses — when adjusted for asset impairment costs and non-recurring costs such as pension liabilities — came to 95 cents per share. While that still stinks, it was better than the $1.05 loss that analysts had expected.

What Went Right for ConocoPhillips

With prices so low, ConocoPhillips is doing the only thing an oil company can do- and that’s cut costs and bunker down. COP continued to bolster its efforts to reduce spending, improve cash flows and its balance sheet. This quarter was more of the same.

Conoco slashed its dividend during the quarter and continued to sell non-core assets. COP also once again lowered its full-year capital expenditure plans down to $5.7 billion, and it’s spending that money in lower-cost plays like the Eagle Ford and Permian Basin.

The energy producer also has significantly reduced deepwater exploration activity as it just doesn’t make sense to tap those resources. While that has meant reduced production, what it is producing is lower-cost and higher-margin.

The efforts seemed to pay off.

Operating costs for the quarter came in at just $1.69 billion, which compares nicely to $2.13 billion in the first quarter of 2015. Including adjustments, ConocoPhillips managed to reduce its operating costs by around 23% in the quarter.

That’s great news for the COP stock holders, as Conoco needs every dollar it has to keep on truckin’ through the lower-oil-price environment.

So Where Does That Leave COP Stock?

The name of the game for ConocoPhillips is simple survival until things get better in the oil patch. Forget about the headline loss — it was there, and it’s going to be there for everyone in the energy sector this quarter. Prices were just too low.

Ultimately, cutting costs and raising cash is what matters, and in that regard, COP managed to deliver.

ConocoPhillips reduced costs, posted  slightly better cash flows and reduce about $4.6 billion in higher-yielding debt by issuing less-than-costly IOUs. That’s what COP needs to get over the hump. And with oil prices seeing better days ahead in this quarter, ConocoPhillips actually could be on the path to return to profitability in future quarters.

That idea was expressed in Conoco’s forward guidance. Better days are coming.

COP had a bad quarter, but we knew it would. The key for ConocoPhillips was that it continues to execute on its cost cutting plans. For investors looking at COP stock today, that’s what matters.

At the end of the day, ConocoPhillips should make it through to better times.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/cop-stock-conocophillips-earnings/.

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