10-QPeriod: Q1 FY2017

CONOCOPHILLIPS Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:COP

Summary

ConocoPhillips reported a significant turnaround in its financial performance for the first quarter of 2017, moving from a substantial net loss in Q1 2016 to a net income of $586 million attributable to the company. This improvement was driven by a strong recovery in commodity prices, with Brent crude oil and Henry Hub natural gas prices increasing significantly year-over-year. The company also made substantial progress on its strategic initiatives, notably announcing the divestiture of its Canadian oil sands and western Canada gas assets, and its San Juan Basin interests, for a combined total of approximately $16.3 billion in expected proceeds. These dispositions are part of ConocoPhillips' strategy to focus on low cost-of-supply projects and improve its financial resilience. Operationally, ConocoPhillips saw a slight increase in production volumes and successfully managed operating costs. The company's value proposition focuses on maintaining a strong balance sheet, growing its dividend, and pursuing disciplined growth. In line with this, the company increased its quarterly dividend, made significant debt prepayments, and continued its share repurchase program. The strategic asset sales are expected to further strengthen the balance sheet by reducing debt levels and increasing share buybacks.

Financial Highlights

44 data points
Beta

Revenue

$7.52B

Net Income

$586.00M

7.8% Net Margin

EPS (Diluted)

$0.47

Total Assets

$87.97B

Cash & Equivalents

$3.11B

Free Cash Flow

$1.79B

Financial Statements
Beta
Revenue$7.52B
SG&A Expenses$97.00M
Operating Expenses$8.00B
Net Income$586.00M
EPS (Basic)$0.47
EPS (Diluted)$0.47
Shares Outstanding (Basic)1.24M
Shares Outstanding (Diluted)1.25M

Key Highlights

  • 1Returned to profitability with a net income of $586 million in Q1 2017, a significant improvement from a $1,469 million net loss in Q1 2016.
  • 2Announced strategic divestitures of Canadian assets for approximately $13.3 billion and San Juan Basin assets for up to $3 billion, totaling over $16 billion in expected proceeds.
  • 3Experienced a substantial increase in average realized commodity prices, with Brent crude up 59% and Henry Hub natural gas up 59% year-over-year.
  • 4Increased the quarterly dividend by 6% and made an $805 million prepayment on its term loan.
  • 5Reduced production and operating expenses by 4% year-over-year.
  • 6Strengthened the balance sheet with a revised debt target of $15 billion by year-end 2019, supported by proceeds from asset sales.
  • 7Increased share repurchase authorization to $6 billion, with $3 billion planned for 2017.

Frequently Asked Questions

The primary driver was the significant increase in commodity prices, particularly for crude oil and natural gas, which more than offset the lower prices experienced in the prior year. This led to higher revenues and improved earnings across most operating segments. Additionally, the company recognized substantial deferred tax benefits related to the planned disposition of Canadian assets.

These large-scale asset dispositions are a key part of ConocoPhillips' strategy to focus on low cost-of-supply projects and enhance financial flexibility. The proceeds are earmarked for significant debt reduction and increased share repurchases, aiming to strengthen the balance sheet and return more capital to shareholders. The sales also streamline the company's portfolio.

ConocoPhillips is actively managing its debt by making prepayments on existing loans and setting a clear target to reduce total debt to $15 billion by the end of 2019, further supported by proceeds from the recent asset sales. Concurrently, the company is returning capital to shareholders through an increased quarterly dividend and a substantially expanded share repurchase program, demonstrating a commitment to shareholder value.

ConocoPhillips anticipates potential future impairment charges, particularly related to assets being marketed or considered for disposition. Specifically, the company expects to record a significant non-cash impairment charge in the second quarter of 2017 related to the announced sale of its San Juan Basin assets. Management notes that quantifying future impairments for all assets is not reasonably practicable at this time.