How ConocoPhillips Turned Losses into Profits in 4Q17



ConocoPhillips’s 4Q17 adjusted net income

ConocoPhillips (COP) announced its 4Q17 earnings on February 1, 2018, before the market opened. According to a press release, it had better-than-expected profits of ~$540 million. Wall Street analysts were expecting ~$495 million. On a year-over-year basis, COP turned profitable after a loss of ~$177 million in 4Q16. Even excluding one-time items, its profits increased 173% sequentially when compared with profits of ~$198 million in 3Q17.

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4Q17 reported net income

ConocoPhillips’s 4Q17 adjusted net income excludes one-time benefits and charges totaling ~$1 billion. Most of that was related to gains from the settlement of the Ecuador arbitration and benefits from the US tax reforms. If you add these one-time items back, COP’s reported net income on a GAAP (generally accepted accounting principles) basis was ~$1.6 billion, or $1.32 per share. Reported net income was -$35 million, or -$0.03 per share in 4Q16.

COP’s net income turnaround from a loss in 4Q16 to a profit in 4Q17 can be attributed to the steep increase in revenue and the decrease in production and operating expenses, exploration expenses, and depreciation expenses. Revenues rose ~20% in 4Q17 compared to 4Q16. Production and operating expenses decreased ~1%, which acted positively on its bottom line. We’ll be looking at COP’s revenues in more detail in the next part.

COP’s peer Occidental Petroleum (OXY), which is part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), is expected to report adjusted net income of ~$275 million in 4Q17. Like COP, OXY is expected to turn the year-ago losses into profits in 4Q17.

For 2017, excluding any one-time items, ConocoPhillips reported adjusted net income of $739 million, or $0.60 per share, from -$3.3 billion, or -$2.66 per share, in 2016.

Let’s look now at COP’s revenues.


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