10-QPeriod: Q2 FY2017

CONOCOPHILLIPS Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 1, 2017For Securities:COP

Summary

ConocoPhillips (COP) reported a net loss of $3.44 billion for the second quarter of 2017, translating to a loss of $2.78 per share. This significant loss was primarily driven by substantial impairment charges related to asset dispositions, particularly the San Juan Basin and Barnett interests, as well as an impairment of its investment in Australia Pacific LNG (APLNG). Despite the net loss, the company highlighted strong operational performance and strategic progress. Cash flow from operating activities significantly improved year-over-year, enabling debt reduction and share repurchases. The company also completed a major asset disposition in Canada and continued to streamline its portfolio, positioning itself for greater resilience in a volatile commodity price environment. Investors should note the ongoing strategy to focus on low cost-of-supply projects, debt reduction to below $20 billion by year-end 2017, and a continued commitment to returning capital to shareholders through dividends and share buybacks.

Financial Highlights

44 data points
Beta

Revenue

$6.78B

Net Income

-$3.44B

-50.7% Net Margin

EPS (Diluted)

$-2.78

Total Assets

$78.00B

Cash & Equivalents

$7.53B

Free Cash Flow

$1.75B

Financial Statements
Beta
Revenue$6.78B
SG&A Expenses$95.00M
Operating Expenses$13.24B
Net Income-$3.44B
EPS (Basic)$-2.78
EPS (Diluted)$-2.78
Shares Outstanding (Basic)1.24M
Shares Outstanding (Diluted)1.24M

Key Highlights

  • 1Reported a net loss of $3.44 billion ($2.78 per share) for Q2 2017, largely due to significant impairment charges of $6.29 billion.
  • 2Significant progress made on debt reduction, with plans to lower year-end 2017 debt to less than $20 billion, supported by strong operating cash flows and asset sales.
  • 3Completed the sale of significant Canadian assets (Foster Creek Christina Lake oil sands partnership and western Canada gas assets) for $10.4 billion in cash and Cenovus Energy shares, along with other strategic dispositions in San Juan Basin and Barnett.
  • 4Cash flow from operating activities significantly increased to $3.54 billion for the first six months of 2017, up from $1.68 billion in the prior year, reflecting higher commodity prices.
  • 5Announced and executed substantial debt retirement in Q2 2017, redeeming $3.0 billion of debt, and continues to focus on reducing total debt to $15 billion long-term.
  • 6Increased share repurchase program, with plans to buy back $3 billion in shares in 2017 and $6 billion by year-end 2019, reflecting a commitment to returning capital to shareholders.
  • 7Average realized commodity prices increased across crude oil, natural gas liquids, bitumen, and natural gas year-over-year, contributing to improved revenue and segment profitability.

Frequently Asked Questions

The primary reason for the significant net loss of $3.44 billion in the second quarter of 2017 was substantial impairment charges totaling $6.29 billion. These impairments were largely driven by the write-down of assets classified as held for sale, specifically the San Juan Basin and Barnett interests, and an impairment of the company's investment in Australia Pacific LNG (APLNG) due to deteriorating price outlooks.

ConocoPhillips is actively reducing its debt. In the second quarter of 2017, the company retired $3.0 billion of debt and made a $0.8 billion prepayment on a term loan earlier in the year. The company plans to reduce its total debt to less than $20 billion by the end of 2017 and has a long-term target of $15 billion. These actions are supported by cash generated from operations and proceeds from asset dispositions.

The company completed the sale of its 50 percent nonoperated interest in the Foster Creek Christina Lake (FCCL) oil sands partnership and the majority of its western Canada gas assets to Cenovus Energy for significant cash proceeds and shares. Additionally, definitive agreements were signed to sell interests in the San Juan Basin and the Barnett, with the San Juan Basin transaction closing in July 2017. These dispositions are part of a strategy to focus on lower cost-of-supply projects.

Operationally, ConocoPhillips showed resilience. Cash flow from operating activities significantly increased year-over-year, reaching $3.54 billion for the first six months of 2017. The company also reported underlying production growth of 3% year-over-year when adjusted for dispositions. Realized commodity prices improved across most product lines, contributing to stronger revenues and segment results despite the significant impairments.