ConocoPhillips has increasing debt
While the price of crude oil remains low, it may become increasingly difficult for energy upstream companies to service debt. Those who have recently incurred huge debts will be more vulnerable since lower crude oil prices affect revenues and cash flows negatively.
ConocoPhillips (COP) is a Houston-based explorer, producer, and marketer of crude oil, natural gas, natural gas liquids (or NGLs), liquefied natural gas (or LNG), and bitumen. It operates primarily in North America, Europe, Asia, and Australia. COP makes up 3.9% of the Energy Select Sector SPDR ETF (XLE). LPI is 1.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
From 4Q09 to 4Q14, ConocoPhillips’ (COP) total long-term borrowing decreased 17%. Long-term borrowings are repaid over more than one year. However, the company has recently increased its debt burden. From 4Q13 to 4Q14, ConocoPhillips’ net debt, or long-term and short-term debt less cash reserves, increased 16% to $17.5 billion.
Net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio currently stands at 1.13x. EBITDA is a measure of profit.
The company’s debt-to-capitalization currently stands at ~30% and has remained little changed from 31% in 4Q09. Total capital includes the company’s debt and shareholders’ equity. A higher ratio indicates a company’s reduced financial flexibility and increased risk of insolvency.
Laredo Petroleum’s net debt increases 111% over one year
Laredo Petroleum (LPI) is an Oklahoma-based independent energy upstream company that operates primarily in the Permian Basin in West Texas.
From 2Q12 to 4Q14, Laredo Petroleum’s (LPI) total long-term borrowing increased 71%. From 4Q13 to 4Q14, its net debt, or long-term and short-term debt less cash reserves, increased at an even higher rate of 111%, to $1.8 billion.
Net debt-to-EBITDA ratio currently stands at 3.8x, a significant deterioration over 1.8x a year ago. Its debt-to-capitalization currently stands at ~53% and has remained at that level from a year ago.
In the following part of this series, we’ll discuss Exxon Mobil Corporation (XOM), the integrated energy giant.