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ConocoPhillips’s Deepwater Exploration Exit Impacts 2016 Guidance

Nicholas Chapman - Author
By

Nov. 20 2020, Updated 1:43 p.m. ET

ConocoPhillips’ production guidance for 2Q16

For 2Q16, ConocoPhillips (COP) expects total production in the range of 1,500–1,540 Mboepd (thousand barrels of oil equivalent per day).

The midpoint of its 2Q16 production guidance is 1,520 Mboepd, which is ~5% lower compared to its production of ~1,595 Mboepd in 2Q15. Sequentially, ConocoPhillips’s production guidance is ~4% lower compared to 1Q16.

ConocoPhillips’s lower 2Q16 production guidance can be attributed to the significant turnaround activity it planned during the quarter.

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ConocoPhillips’ production guidance for 2016

For 2016, ConocoPhillips expects to meet its previously stated production guidance of ~1,525 MBoepd, which is almost equal to its 2015 production when adjusted for dispositions during the year.

In 2016, ConocoPhillips’s production will be impacted by 64 Mboepd due to dispositions carried out in 2015. In 2016, ConocoPhillips is planning a phased exit from deepwater exploration as part of its cost-cutting measures.

Pioneer Natural Resources (PXD) is expecting ~12% growth in its 2016 production, but many other upstream companies such as Energen (EGN), Southwestern Energy (SWN), Chesapeake Energy (CHK), and Marathon Oil (MRO) are expecting lower production volumes in 2016.

The Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares ETF (DRIP) is a leveraged inverse ETF that invests in oil and gas exploration and production companies.

ConocoPhillips’s capital expenditure

In April 2016, ConocoPhillips reduced its 2016 capital expenditure (capex) guidance from $6.4 billion to $5.7 billion, primarily driven by reduced deepwater exploration activity, deferrals, and lower costs across its portfolio. In 1Q16, COP’s capital expenditure was ~$1.8 billion, whereas its cash from operations was ~$700 million, resulting in a free cash flow of -$1.1 billion.

For 2Q16, Wall Street analysts expect ConocoPhillips to spend ~$1.4 billion in capex.

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