10-QPeriod: Q2 FY2013

CONOCOPHILLIPS Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 2, 2013For Securities:COP

Summary

ConocoPhillips (COP) reported a strong second quarter of 2013, demonstrating robust operational performance and a strategic focus on higher-margin assets. The company achieved significant production levels and increased its quarterly dividend, signaling confidence in its future prospects. Despite facing volatile commodity prices, COP's diversified asset base and ongoing portfolio optimization, including significant asset dispositions, are geared towards delivering production and cash margin growth. The company's financial results show improved earnings from continuing operations, driven by higher volumes, a shift towards liquids-rich production, and favorable resolutions of pending claims. While asset sale gains were lower compared to the previous year, overall operational efficiency and strategic capital allocation, including a substantial capital program and debt repayment, underscore a commitment to shareholder returns and financial flexibility. COP is actively managing its portfolio to enhance value and maintain its competitive position in the global E&P market.

Financial Highlights

42 data points
Beta

Revenue

$13.35B

Net Income

$2.05B

15.4% Net Margin

EPS (Diluted)

$1.65

Total Assets

$116.95B

Cash & Equivalents

$3.91B

Free Cash Flow

$3.74B

Financial Statements
Beta
Revenue$13.35B
SG&A Expenses$193.00M
Operating Expenses$10.45B
Operating Income$4.06B
Net Income$2.05B
EPS (Basic)$1.66
EPS (Diluted)$1.65
Shares Outstanding (Basic)1.23M
Shares Outstanding (Diluted)1.24M

Key Highlights

  • 1ConocoPhillips (COP) announced a 4.5% increase in its quarterly dividend to $0.69 per share, reflecting confidence in its financial stability and future growth.
  • 2Second quarter production reached 1,552 thousand barrels of oil equivalent per day (MBOED), with continuing operations at 1,510 MBOED, exceeding previous guidance and demonstrating strong operational execution.
  • 3The company generated $8.3 billion in cash from continuing operations in the first six months of 2013, a 35% increase year-over-year, primarily due to lower taxes and improved working capital management.
  • 4Significant asset disposition progress is noted, with approximately $1.7 billion received in the first half of 2013 and an anticipated $9.0 billion from the planned sales of Kashagan, Nigerian, and Algerian businesses.
  • 5Earnings from continuing operations increased by 20% in Q2 2013 and 5% for the six-month period, driven by higher volumes, a shift to liquids, favorable claim resolutions, and higher natural gas prices.
  • 6Capital expenditures for the first six months of 2013 totaled $7.1 billion for continuing operations, focused on key exploration and development programs in high-margin areas.
  • 7COP reached an agreement to terminate its long-term agreement at the Freeport LNG Terminal, resulting in a net cash outflow of approximately $80 million and an after-tax charge of $540 million, but is expected to save $50-60 million annually in operating costs.

Frequently Asked Questions

ConocoPhillips' strategy is focused on delivering production and cash margin growth, competitive returns on capital, and a compelling dividend. This is achieved through optimizing its portfolio, investing in high-margin developments, applying technical capabilities, and maintaining financial flexibility. The company expects to fund its capital program organically over the next five years through investments in high-margin developments, leading to projected annual production and margin growth of 3-5%.

The company is actively pursuing a significant asset disposition program, including the planned sale of its interests in Kashagan, Nigeria, and Algeria, which are expected to generate approximately $9.0 billion in proceeds. These dispositions are part of a strategy to optimize the portfolio and focus on higher-margin E&P assets. While these sales reduce the company's footprint in certain areas, they are intended to enhance overall financial flexibility and focus capital on more promising, higher-return opportunities.

Commodity prices, particularly for crude oil and natural gas, are identified as the most significant factor impacting profitability. While WTI crude oil prices remained relatively flat in Q2 2013 compared to the prior year, Brent prices decreased. Natural gas prices increased significantly due to colder weather. The company's strategy of maintaining a strong balance sheet and a diverse asset portfolio is designed to provide financial flexibility to withstand commodity price volatility. The decline in natural gas liquids prices also impacted domestic realized prices.

ConocoPhillips reached an agreement to terminate its long-term agreement at the Freeport LNG Terminal. While this involves a termination fee and an after-tax charge to earnings, it will reduce the company's terminal regasification capacity and is expected to result in annual operating cost savings of approximately $50 to $60 million over the next 19 years. This move reflects a strategic adjustment to its LNG operations.