Oil prices and ConocoPhillips’ earnings
ConocoPhillips’ (COP) adjusted EPS might fall ~28% in the fourth quarter on a sequential basis based on analysts’ consensus estimate for an adjusted EPS of $0.98. During the same period, Brent crude oil prices fell 14.7% on a sequential basis—an important factor that might drag ConocoPhillips’ earnings. ConocoPhillips operates with a production mix of 63% in liquids. Liquids include crude oil, condensates, and natural gas liquids. ConocoPhillips is scheduled to report its fourth-quarter earnings on January 31. The following graph shows how oil prices impacted the company’s earnings.
Higher natural gas prices
ConocoPhillips operates with a production mix of 36% in natural gas. The company’s net income has a sensitivity of $25 million–$35 million per 25 cents per million cubic feet change in natural gas prices. In the fourth quarter, natural gas prices were ~29.6% higher than the previous quarter. However, the monthly contingent payment of $7 million is excluded if Henry Hub natural gas prices averaged more than or equal to 3.20 per MMBtu.
EOG Resources (EOG), Occidental Petroleum (OXY), Anadarko Petroleum (APC), and Concho Resources (CXO), the S&P 500 Index’s (SPY) largest holdings in the upstream subsector, might report a downside of 19.4%, 33.9%, 23.2%, and 19% in the fourth-quarter earnings on a sequential basis. ConocoPhillips might report the second-largest fall in earnings among SPY’s top-five holdings in the upstream subsector.
Next, we’ll discuss ConocoPhillips’ cash flow.