Oil prices and ConocoPhillips’s earnings
On January 31, ConocoPhillips (COP) reported adjusted EPS of $1.13 for the fourth quarter, a fall of 17% on a sequential basis. It did, however, beat analysts’ consensus estimate by 13%.
In the fourth quarter, COP’s total production increased 7.6% on a sequential basis, while its production and operating costs fell 3.6%—an important factor for COP, whose earnings were higher than expected.
In the fourth quarter, Brent crude oil prices fell 14.7% on a sequential basis—a crucial factor that might have dragged on its earnings. However, COP’s average realized price per barrel for crude oil fell 12.6% on a sequential basis in the quarter. The company operates with a production mix of ~66% in liquids. Liquids include crude oil, bitumen, and natural gas liquids. The graph above shows how oil prices have affected the company’s earnings. As of 10:56 AM EST on January 31, COP had risen 3.6%, and oil prices had risen 1.1%.
Higher natural gas prices
ConocoPhillips operates with a production mix of 34% in natural gas. The company’s net income has a sensitivity of $25 million–$35 million with a change of $0.25 per thousand cubic feet in natural gas prices. In the fourth quarter, natural gas prices were ~29.6% higher than in the previous quarter. However, that translated to only an 11.2% upside in the average realized price of natural gas in the fourth quarter on a sequential basis.
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, may report downsides of 19.4%, 33.9%, 23.2%, and 19%, respectively, in the fourth quarter on a sequential basis. ConocoPhillips could report the second-largest fall in earnings among SPY’s top five holdings in the upstream subsector.