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How Crude Oil Prices Are Affecting ConocoPhillips’s Margins

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EBITDA margin

In 3Q16, on a sequential basis, ConocoPhillips’s (COP) EBITDA margin fell by more than six percentage points, or by ~22%, from 2Q16. The sequentially lower EBITDA margin in 3Q16 can be attributed to higher lifting costs and higher costs of purchased commodities. In 3Q16, ConocoPhillips reported lifting costs of ~$11.78 per boe (barrel of oil equivalent) from ~$11.67 per boe in 2Q16.

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Has COP’s EBITDA margin bottomed out?

From 3Q14 to 4Q15, ConocoPhillips’s adjusted EBITDA margins were trending lower due to declining crude oil (USO) prices. In 4Q15, ConocoPhillips reported its lowest adjusted EBITDA margin since 2010. In the first two quarters of 2016, ConocoPhillips reported rising adjusted EBITDA margins due to lower costs and higher trending crude oil and natural gas prices.

COP’s peers Devon Energy (DVN), Encana (ECA), and Marathon Oil (MRO) reported ~29%, ~32%, and ~33% EBITDA margins, respectively, in 3Q16. The Vanguard Energy ETF (VDE) invests into the broader energy market.

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