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How falling crude oil prices will affect ConocoPhillips’ earnings


Jan. 28 2015, Updated 5:28 p.m. ET

Commodity price sensitivity

Although the rout in crude oil prices hasn’t threatened companies like ConocoPhillips (COP), the company is still vulnerable to commodity price risks.

ConocoPhillips (COP) is a component of key energy ETFs such as the Energy Select Sector SPDR (XLE), the Vanguard Energy ETF (VDE), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and the Vanguard Total World Stock Index Fund (VT).

ConocoPhillips’ (COP) management suggested in a presentation that falling crude oil prices might affect its cash flows.

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According to ConocoPhillips (COP), falling crude oil prices will cause the company’s earnings to decline by about $35–$40 million for each $1 change in WTI (West Texas Intermediate) crude. Earnings will decline by about $80–$90 million for each $1 change in Brent Crude. For every $0.25 per million cubic feet change in Henry hub spot prices, the company’s earnings will drop by $100–$110 million.

As earnings decline, the major factor to consider is the company’s ability to pay dividends. Since ConocoPhillips has ~$5.4 billion in cash, the company will most likely be able to keep up its dividend payments in 2015. However, if oil prices continue to plummet past 2015, energy investors might lose confidence in the company’s ability to pay dividends. The following part continues this discussion.

Investors should therefore closely watch WTI and Brent prices in the coming months.


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