Operating cash flows
In 3Q16, ConocoPhillips (COP) reported an operating cash flow of ~$1.3 billion, which was ~34% lower than its operating cash flow of ~$1.9 billion in 3Q15. On a year-over-year basis, lower operating revenues as a result of lower production and lower realized prices for crude oil (USO), natural gas liquids and natural gas (UNG) production affected ConocoPhillips’s operating cash flows negatively in 3Q16.
In 3Q16, ConocoPhillips’s capital expenditure has fallen on a year-over-year and sequential basis. In 3Q16, COP spent ~$916 million in capital expenditure, which was ~53% lower than the $2.2 billion in 3Q15. Sequentially, ConocoPhillips’s capital expenditure has fallen ~19% from ~$1.1 billion in 2Q16.
In October 2016, ConocoPhillips reduced its 2016 capital expenditure guidance by $300 million to ~$5.2 billion, which is ~49% lower than what COP spent in 2015. Year-to-date, COP has spent ~$3.9 billion in capital expenditure.
Why COP reported higher free cash flow in 3Q16
In 3Q16, steep reductions in capital expenditures helped COP to report higher free cash flow on a year-over-year and sequential basis. In 3Q16, ConocoPhillips reported ~189% higher free cash flow compared to 2Q16. Year-to-date, ConocoPhillips reported total free cash flow of about -$910 million.
COP peers Pioneer Natural Resources (PXD), Occidental Petroleum (OXY), California Resources (CRC), and Range Resources (RRC) reported -$7 million, $4 million, $82 million, and -$71.8 million, respectively, in free cash flows in 3Q16.
Free cash flow helps a company to enhance shareholder value and can be used to pay dividends, buy back stock, or repay debt. Free cash flow is calculated by subtracting capex from operating cash flow.