What is realized price effectiveness?
Realized price effectiveness is defined as a shortfall or excess of a total realized price-to-cost item, scaled by cost item. In other words, realized price effectiveness tells us how much lower or higher a company’s realized price is in comparison with its production costs.
COP’s total realized price
For 2Q17, ConocoPhillips’s total realized price excluding hedging profit was $33.09 per boe (barrel of oil equivalent)—much better than its $26.06 per boe in 2Q16. COP’s realized price is calculated by scaling COP’s oil and gas revenue by total production.
The YoY (year-over-year) increase in ConocoPhillips’s 2Q17 total realized price can be attributed to the higher realized prices for its crude oil (USO), natural gas (UNG), and natural gas liquids production in 2Q17, compared with those in 2Q16.
ConocoPhillips’s production cash costs have fallen slightly on a YoY basis. For 2Q17, ConocoPhillips’s production cash cost was $15.03 per boe, which was just lower than its cash cost of $15.08 per boe in 2Q16.
COP’s production cash cost includes production operating expenses, production and ad valorem taxes, general and administrative cash expenses, and interest cash expenses.
Total production cost
COP’s total production costs have improved significantly on a YoY basis. For 2Q17, ConocoPhillips’s total production cost was $27.45 per boe—much lower than its total production cost of $31.63 per boe in 2Q16.
COP’s total production cost includes production cash costs as well as DD&A (depletion, depreciation, and amortization) expenses. The majority of the decline in COP’s total production costs came from lower DD&A expenses in 2Q17.
COP’s realized price effectiveness
For 2Q17, ConocoPhillips reported positive realized price effectiveness of ~120% in terms of cash costs and ~21% in terms of total production cost. By comparison, Devon Energy (DVN) has a realized price (without hedging benefits) of ~68% above its production cash costs and ~13% above its total production costs.