HOUSTON–(BUSINESS WIRE)–ConocoPhillips (NYSE: COP) today reported third-quarter 2018 earnings of $1.9 billion, or $1.59 per share, compared with third-quarter 2017 earnings of $0.4 billion, or $0.34 per share. Excluding special items, third-quarter 2018 adjusted earnings were $1.6 billion, or $1.36 per share, compared with third-quarter 2017 adjusted earnings of $0.2 billion, or $0.16 per share. Special items for the current quarter were primarily for amounts recognized from the PDVSA arbitration settlement, partially offset by unrealized losses on Cenovus Energy equity.
Third-Quarter Highlights and Recent Announcements
- Cash provided by operating activities was $3.4 billion. Excluding working capital, cash from operations of $3.5 billion exceeded capital expenditures, dividends and share repurchases by $0.6 billion.
- Third-quarter production excluding Libya of 1,224 MBOED; year-over-year underlying production excluding the impact of closed dispositions grew 6 percent overall and 28 percent on a production per debt-adjusted share basis.
- Year-over-year production from the Lower 48 Big 3 unconventionals grew by 48 percent.
- During the quarter, achieved first production from Bohai Phase 3 and from the final phase of drilling at Bayu-Undan. GMT-1 achieved first production in October.
- Ended the quarter with cash, cash equivalents and restricted cash totaling $3.9 billion and short-term investments of $0.9 billion, equating to $4.8 billion of ending cash and short-term investments.
- Repurchased $0.9 billion of common shares outstanding, bringing year-to-date repurchases to $2.1 billion.
- Reached a settlement agreement with PDVSA to fully recover an arbitration award of approximately $2 billion; recognized cash and commodities totaling $345 million in the quarter, with the remainder of the approximately $500 million in initial payments due in the fourth quarter.
- Announced Barnett and Greater Sunrise dispositions for $580 million before customary adjustments.
- Received credit rating upgrades from Fitch and Moody’s.
- Announced quarterly dividend increase of 7 percent to 30.5 cents per share.
“We’re delivering another year of strong performance by successfully executing our disciplined, returns-focused plan,” said Ryan Lance, chairman and chief executive officer. “We’ve accomplished many strategic, financial and operational milestones this year, ahead of our original schedule. Our strategy is designed to generate superior returns through cycles by maintaining discipline, focusing on free cash flow and allocating this cash according to clear, shareholder-friendly priorities. This is what the market can expect from us again in 2019.”
Production excluding Libya for the third quarter of 2018 was 1,224 thousand barrels of oil equivalent per day (MBOED), an increase of 22 MBOED compared with the same period a year ago. The third-quarter volume impact from closed dispositions was approximately 50 MBOED in 2017. Excluding this impact, underlying production increased 6 percent. The increase was primarily due to growth from the Big 3 unconventionals, development programs in Europe and Alaska, and ramp-up of major projects in Asia Pacific. These more than offset normal field decline. Production from Libya was 37 MBOED.
In the Lower 48, production from the company’s high-margin Big 3 unconventionals grew to 313 MBOED, reflecting a 48 percent increase year-over-year. Production from the Big 3 unconventionals in the third quarter of 2017 was impacted by 15 MBOED from Hurricane Harvey. Excluding this impact, growth was 38 percent year-over-year. Production from the Big 3 unconventionals is expected to grow more than 35 percent for the full year.
During the quarter, the company achieved first production at Bohai Phase 3 and from the final phase of drilling at Bayu-Undan. In Alaska, first production was achieved from GMT-1 in October. The company also sanctioned GMT-2, which leverages existing infrastructure to lower its cost of supply and minimize the environmental footprint. Significant turnarounds were safely and successfully completed in the Western North Slope and Prudhoe Bay in Alaska, as well as in China and Malaysia. In Europe, production was impacted by an unplanned outage at a third-party plant that processes gas from the East Irish Sea in the United Kingdom. Production from the East Irish Sea is expected to resume in the fourth quarter.
Earnings increased versus the third quarter of 2017 primarily as a result of higher realized prices across all commodities, amounts recognized from the PDVSA arbitration settlement, and higher sales volumes. Sales volumes for the quarter exceeded production, resulting in a favorable impact to earnings of approximately $80 million. Adjusted earnings were improved compared with third-quarter 2017 primarily due to higher realized prices and sales volumes. The company’s total realized price was $57.71 per barrel of oil equivalent (BOE), a 46 percent improvement compared with $39.49 per BOE in the third quarter of 2017, reflecting stronger marker prices and a more liquids-weighted portfolio.
For the quarter, cash provided by operating activities was $3.41 billion. Excluding a ($0.05) billion change in working capital, ConocoPhillips generated $3.46 billion in cash from operations. This exceeded $1.6 billion in capital expenditures and investments, $0.93 billion of repurchased shares and $0.33 billion of dividends by $0.6 billion.
ConocoPhillips’ nine-month 2018 earnings were $4.4 billion, or $3.72 per share, compared with a nine-month 2017 loss of $2.4 billion, or ($1.98) per share. Nine-month 2018 adjusted earnings were $4.0 billion, or $3.41 per share, compared with nine-month 2017 adjusted earnings of $0.2 billion, or $0.16 per share.
Production excluding Libya for the first nine months of 2018 was 1,221 MBOED, compared with 1,403 MBOED for the same period in 2017. The nine-month volume impact from closed dispositions was approximately 240 MBOED in 2017. Excluding the impact from closed dispositions, underlying production increased 5 percent. The increase was primarily due to growth from the Big 3 unconventionals, development programs in Europe and Alaska, and ramp-up of major projects in Asia Pacific. These more than offset normal field decline.
The company’s total realized price during this period was $54.20 per BOE, compared with $37.10 per BOE in the first nine months of 2017. This reflected stronger marker prices and a more liquids-weighted portfolio.
For the nine months ended Sept. 30, 2018, cash provided by operating activities was $9.15 billion. Excluding a $0.04 billion change in working capital, ConocoPhillips generated $9.11 billion in cash from operations. This exceeded $5.1 billion in capital expenditures and investments, $2.1 billion of repurchased shares and $1.0 billion of dividends by $0.9 billion. In addition, the company paid $5.0 billion to reduce debt and sold $1.0 billion of short-term investments. The $5.1 billion in capital expenditures and investments included $0.4 billion for the Alaska Western North Slope bolt-on acquisition and $0.1 billion to acquire additional acreage in the Montney in Canada.
Fourth-quarter 2018 production is expected to be 1,275 to 1,315 MBOED, reflecting the completion of seasonal turnarounds, growth from several conventional project startups and ongoing development in the unconventionals. This guidance includes impacts expected from the previously announced Barnett disposition and excludes Libya.
The company adjusted its 2018 capital guidance to $6.1 billion versus the prior guidance of $6 billion, reflecting higher partner-operated spend. This guidance excludes the previously announced $0.4 billion bolt-on acquisition in the Alaska Western North Slope and $0.1 billion to acquire additional acreage in the Montney in Canada. Full-year guidance for depreciation, depletion and amortization expense was updated to $6.0 billion from $5.9 billion. The company’s other guidance items are unchanged.
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.
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 17 countries, $71 billion of total assets, and approximately 11,100 employees as of Sept. 30, 2018. Production excluding Libya averaged 1,221 MBOED for the nine months ended Sept. 30, 2018, and proved reserves were 5.0 billion BOE as of Dec. 31, 2017. For more information, go to www.conocophillips.com.
|Table 1: Reconciliation of earnings to adjusted earnings|
|$ Millions, Except as Indicated|
|3Q18||3Q17||2018 YTD||2017 YTD|
Per share of
Per share of
Per share of
Per share of
|Premiums on early debt retirement||–||–||–||–||51||(11||)||40||0.03||208||(13||)||195||0.17||285||(60||)||225||0.18|
|Unrealized (gain) loss on CVE equity||76||(16||)||60||0.05||–||–||–||–||(195||)||28||(167||)||(0.14||)||–||–||–||–|
|Pending claims and settlements||(286||)||7||(279||)||(0.24||)||9||(21||)||(12||)||(0.01||)||(421||)||72||(349||)||(0.30||)||7||(90||)||(83||)||(0.07||)|
|Pension settlement expense||14||(3||)||11||0.01||20||(6||)||14||0.01||161||(29||)||132||0.11||116||(34||)||82||0.07|
|Net (gain) loss on asset sales||(101||)||25||(76||)||(0.06||)||(231||)||78||(153||)||(0.12||)||(151||)||39||(112||)||(0.09||)||(2,086||)||(441||)||(2,527||)||(2.05||)|
|Recognition of deferred licensing revenue||(44||)||–||(44||)||
|Deferred tax adjustment||–||–||–||–||–||–||–||–||–||–||–||–||–||(37||)||(37||)||(0.03||)|
|Nova Scotia deepwater exploration exit||–||–||–||–||–||(114||)||(114||)||(0.09||)||–||–||–||–||–||(114||)||(114||)||(0.09||)|
|Adjusted earnings / (loss)||$||1,595||1.36||198||0.16||4,022||3.41||199||0.16|
|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.|