ConocoPhillips Earnings: Brutal Oil Market Cuts Deep into Profits

By Markets Fool.com

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ConocoPhillips reports a frigid quarter along with chilly guidance. Source: ConocoPhillips.

ConocoPhillips reported fourth-quarter results before the opening bell this morning. America's top independent oil and gas company was bitten by the plunge in crude oil as it reported a loss this quarter, though on an adjusted basis it did make money. The company also reduced its production guidance for the full-year as a result of another cut to capital spending as it digs in for what continues to be a rough oil market.

Drilling down into the numbers

ConocoPhillips' reported a fourth-quarter loss of $39 million, or $0.03 per share. That's a huge swing from the $2.5 billion, or $2.00 per share it earned in the fourth-quarter of 2013. That being said, after adjusting for special items the company did make money this quarter as its adjusted earnings were $700 million, or $0.60 per share. That's actually a penny above what Wall Street was expecting. However, that's still a billion dollars, and $0.80 per share, less than the company earned in the fourth-quarter of 2013.

On the positive side the company did report solid production in the quarter as it averaged 1,567 thousand barrels of oil equivalent per day, or MBOE/D. That was toward the higher end of the company's guidance range of 1,545 to 1,575 MBOE/D. Overall, production was up 5% year-over-year after adjusting from downtime and dispositions as new production from major projects delivered as expected.

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Because production was strong we can point to lower oil prices as the culprit behind the company's lower earnings. ConocoPhillips only realized $52.88 per BOE in the quarter, which was well below the $65.41 per BOE it realized in the fourth-quarter of 2013. In addition to that the company's adjusted earnings were affected by increased dry hole expense, higher operating costs, and depreciation expenses. Meanwhile, the non-adjusted earnings reflected a loss because the company booked a $500 million charge for the Freeport LNG termination as well as non-cash impairments to natural gas assets in the UK, and LNG-related pipeline and some leaseholds in the Lower 48 of the U.S.

All of these charges and expenses aside, the company did still produce a lot of cash this quarter. Overall, cash provided by operating activities was $2.6 billion. While that's well below previous quarters it does show that the underlying business clearly isn't losing money in this environment.

A look at outlook

As a result of the continued slide in oil prices ConocoPhillips is adjusting its 2015 spending plan. The company is cutting another 15% from the capex plan as it will be reduced from $13.5 billion to $11.5 billion. This cut is on top of the 20% cut the company made to spending late last year as a result of slumping oil prices.

This round of cuts will see the company defer onshore drilling and exploration programs in the Lower 48 as well as the deferral of major project spending. Despite these cuts the company still plans to deliver 2%-3% production growth this year, which is slightly below its previous plan of 3% production growth and a bit less than its long-term target of 3%-5% annual production growth. Still, its a prudent move as there's really no reason to grow production as quickly given that the world is currently oversupplied with oil.

Investor takeaway

Falling oil prices are clearly having an impact on ConocoPhillips' bottom line. However, the company is responding to this by cutting its spending in order to maintain its balance sheet strength so that it can protect its dividend and preserve its liquidity for future opportunities. The company knows that the current oversupply in the market will eventually be worked off so its digging in and waiting out the storm.

The article ConocoPhillips Earnings: Brutal Oil Market Cuts Deep into Profits originally appeared on Fool.com.

Matt DiLallo owns shares of ConocoPhillips because it has thestrengthto endure this brutal oil market. The Motley Fool has no position in any of the stocksmentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.