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What Factors Affected ConocoPhillips’s 2Q16 Production?

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Aug. 3 2016, Updated 8:08 a.m. ET

ConocoPhillips’s 2Q16 production

For 2Q16, ConocoPhillips (COP) reported a total production of 1,546 Mboe (thousand barrels of oil equivalent) per day, which is higher than its 2Q16 production guidance of 1,500–1,540 Mboe per day. Even though ConocoPhillips beat its own production guidance, its 2Q16 production is ~3% lower than its 2Q15 production of 1,595 Mboe per day. ConocoPhillips’s 2Q16 production is ~2% lower than it was in 1Q16.

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Factors that impacted ConocoPhillips’s 2Q16 production

ConocoPhillips’s lower production in 2Q16 can be attributed to the normal field decline, dispositions, planned downtime, and the impact of wildfires in Canada. ConocoPhillips’s lower production due to the above factors was partly offset by growth from its major projects, development programs, and improved well performance.

When adjusted for 95 MBoe per day from asset dispositions in 2Q15 (72 MBoe per day) and downtime in 2Q16 (23 MBoe per day), ConocoPhillips’s 2Q16 production is actually up by 46 MBoe per day, or by ~3%, from 2Q15.

ConocoPhillips’s production guidance

For 3Q16, ConocoPhillips expects total production in the range of 1,510–1,550 MBoe per day, a midpoint decrease of ~2% from 3Q15. This is due to significant planned turnaround activity during 3Q16.

For 2016, ConocoPhillips increased its fiscal production guidance to 1,540–1,570 MBoe per day, a midpoint increase of ~30 Mboe per day, or ~2%, from its previous guidance of ~1,525 MBoe per day. Last month, S&P 500 (SPY) upstream companies Devon Energy (DVN), Southwestern Energy (SWN), and Pioneer Natural Resources (PXD) also increased their fiscal 2016 production guidance.

ConocoPhillips’s divestiture

On July 13, 2016, ConocoPhillips entered into an agreement to sell its 35% interest in three offshore Senegal exploration blocks. The sale agreement is for $350 million plus net customary adjustments of ~$80 million. This divestiture is part of ConocoPhillips’s strategy to exit from deepwater exploration in West Africa. The transaction is expected to close by the end of 2016.

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