ConocoPhillips’s Free Cash Flow Turns Positive for the First Time since Crude Oil Top



Revenues and operating cash flows

In 2Q16 ConocoPhillips’s (COP) operating revenue from crude oil (USO), natural gas (UNG), bitumen, and natural gas liquids sales totaled ~$3.7 billion, which represents a fall of ~32% from 2Q15. The lower operating revenue in 2Q16 was the direct result of lower production and lower realized prices for crude oil, natural gas, and natural gas production.

In 2Q16, COP reported an OCF (operating cash flow) of ~$1.3 billion, which was ~42% lower than its OCF of ~$2.2 billion in 2Q15. The fall in 2Q16 OCF was primarily due to the lower operating revenues.

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Free cash flow trend

In 2Q16, ConocoPhillips reported a positive FCF (free cash flows) of ~$126 million. In 1H16, it reported total FCF of about -$1.3 billion.

As the chart above shows, COP has reported negative FCF since 2Q14. In 2015, ConocoPhillips reported lowest ever yearly FCF of nearly -$2.5 billion.

Due to the steep downward trend in energy prices, most S&P 500 (SPY) energy companies have reported negative FCFs. Pioneer Natural Resources (PXD), Range Resources (RRC), and Murphy Oil (MUR) reported -$137 million (or -$0.84 per share), -$53 million (or -$0.31 per share), and -$322 million (or -$1.87 per share) in free cash flows, respectively, in 2Q16.

Remember, FCF helps a company enhance its shareholder value and can be used to pay dividends, buy back stock, or repay debt. FCF is calculated by subtracting capital expenditure from OCF.

We’ll take a closer look at ConocoPhillips’s capital expenditure in the next part.


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