ConocoPhillips has announced it is taking actions to maintain its strong balance sheet in response to both the weak outlook for commodity prices and expected credit tightening across the industry. The actions will position the company to accelerate shareholder value creation as prices recover.
Dividend and operating plan actions
The company announced that its board of directors approved a reduction in the company’s quarterly dividend to US$0.25 per share, compared with the previous quarterly dividend of US$0.74 per share. The dividend is payable on 1 March 2016 to stockholders of record at the close of business on 16 Feb 2016.
The company also announced revisions to its previously disclosed 2016 operating plan. The company lowered capital expenditures guidance from US$7.7 billion to US$6.4 billion and operating cost guidance from US$7.7 billion to US$7.0 billion. Production in 2016 is expected to be flat with 2015 volumes, adjusted for the full year impact of 2015 asset divestitures.
“While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time,” said Ryan Lance, Chairman and Chief Executive Officer. “The actions we have announced will improve net cash flow by US$4.4 billion in 2016. The decision to reduce the dividend was a difficult one. The dividend has been, and will continue to be, a top priority. We still intend to provide a competitive dividend, while significantly lowering the breakeven price for the company and substantially reducing the level of borrowing in 2016. Our actions also position us to deliver strong absolute and relative performance as prices recover.”
4Q15 and full year 2015 results
ConocoPhillips reported a 4Q15 net loss of US$3.5 billion, or (US$2.78) per share, compared with a 4Q15 net loss of US$39 million, or (US$0.03) per share. Excluding special items, 4Q15 adjusted earnings were a net loss of US$1.1 billion, or (US$0.90) per share, compared with 4Q14 adjusted earnings of US$0.7 billion, or US$0.60 per share. Special items for the current quarter related primarily to non-cash impairments due to price impacts and changes to future exploration plans, partially offset by net gains on asset sales.
Full year 2015 earnings were a net loss of US$4.4 billion, or (US$3.58) per share, compared with full-year 2014 earnings of US$6.9 billion, or US$5.51 per share. Excluding special items, full year 2015 adjusted earnings were a net loss of US$1.7 billion, or (US$1.40) per share, compared with full-year 2014 adjusted earnings of US$6.6 billion, or US$5.30 per share.
Achieved full-year production of 1589 million bpd; 5% production growth from continuing operations, adjusted for Libya, downtime and dispositions.
- Lowered operating costs by 14% year over year.
- Reduced 2015 capital by 41% compared with 2014.
- Achieved major project startups at APLNG and Surmont 2.
- Completed additional startups at Eldfisk II, CD5, Drill Site 2S, Enochdhu and the Brodgar H3 subsea tieback.
- Announced phased exit from deepwater exploration.
- Completed approximately US$2 billion of non-core asset dispositions across the portfolio.
- Ended the year with US$2.4 billion of cash and cash equivalents.
Fourth quarter review
Production from continuing operations for the 4Q15 was 1 599 000 bpd, an increase of 32 million bpd compared with the same period a year ago, excluding Libya. Growth was primarily due to new production from major projects and development programs, as well as improved well performance, partially offset by normal field decline. The net increase in production reflects 42 million bpd, or 3% growth, after adjusting for 10 million bpd from dispositions and downtime.
First production was achieved at CD5 and Drill Site 2S in Alaska. In Canada, production continued to ramp at Surmont 2 and the Cheshire exploration well spud offshore Nova Scotia. First LNG was achieved at APLNG in December and the first cargo departed Australia in January 2016. The company also completed several non-core asset dispositions in the Lower 48, Canada, Europe and North Africa, and Other International. The first Senegal appraisal well and flow test confirmed the discovery and the second appraisal well is currently drilling. In the Gulf of Mexico, drilling is currently underway at the Melmar, Gibson and Tiber wells.
Adjusted earnings were lower compared with 4Q14 primarily due to lower realised prices. The company’s total realised price was US$28.54/bbl, compared with US$52.88/bbl in 4Q14, reflecting lower average realised prices across all commodities. During the quarter, dry hole expense of US$565 million, or US$506 million excluding special items, was incurred primarily in Canada and the Gulf of Mexico. Fourth quarter earnings were also negatively impacted by US$57 million of foreign exchange rate impacts, primarily from tax on foreign exchange rate movements in the Asia Pacific and Middle East segment.
Special items for the quarter resulted in after tax impacts of US$2.3 billion. Special items included US$2.7 billion of non-cash impairments primarily from price related impacts at APLNG in Australia and various assets in the UK, as well as changes to future exploration plans in the Chukchi Sea in Alaska, Angola and the Gulf of Mexico, partially offset by US$366 million from net gains on asset sales.
Operating costs for the quarter were US$2.14 billion compared with US$3.35 billion in 4Q14. Adjusted for US$0.23 billion pre-tax of 2015 special items from Angola Block 36 obligations, restructuring charges and pension settlement expense, and US$0.80 billion pre-tax from the Freeport LNG termination in 2014, operating costs were reduced 25%, or US$0.63 billion, compared with 4Q14.
For the quarter, cash provided by continuing operating activities was US$1.6 billion. Excluding a US$0.2 billion change in operating working capital, ConocoPhillips generated US$1.8 billion in cash from operations. In addition, the company funded US$2.1 billion in capital expenditures and investments, received proceeds from asset dispositions of US$1.6 billion, and paid dividends of US$0.9 billion.
Full year reviewProduction from continuing operations was 1.589 billion bpd in 2015, an increase of 57 million bpd compared with 1.532 billion bpd in 2014, excluding Libya. The net increase in production reflects 70 million bpd, or 5% growth, after adjusting for 13 million bpd from dispositions and downtime. Production increased due to growth from major projects and development programs, as well as improved well performance, partially offset by normal field decline.The company’s total realised price during this period was US$34.34/bbl, compared with US$64.59/bbl in 2014. This reflected lower average realised prices across all commodities.
Operating costs for the full year of 2015 were US$9.10 billion compared with US$10.52 billion in 2014. Adjusted for US$1.06 billion pre-tax of 2015 special items from restructuring charges, rig termination costs, pension settlement expense and Angola Block 36 obligations, and US$0.80 billion pre-tax from the Freeport LNG termination in 2014, operating costs were reduced 17% year over year, or US$1.68 billion.
In 2015, cash provided by continuing operating activities was US$7.6 billion. Operating working capital had no impact during the year. Additionally, the company funded US$10.1 billion in capital expenditures and investments, paid dividends of US$3.7 billion, received proceeds from asset dispositions of US$2.0 billion, and increased debt by US$2.4 billion.
As of 31 December 2015, ConocoPhillips had US$2.4 billion of cash and cash equivalents. The company ended the year with debt of US$24.9 billion and a debt to capital ratio of 38%.
Preliminary year-end 2015 proved reserves are 8.2 billion bbls. Additions excluding market factors and dispositions are expected to be 523 million bbls, or an 86% adjusted replacement ratio. Dispositions were 175 million bbls. Market factors, primarily related to lower prices, were a reduction of 464 million bbls. The company expects to rebook reserves as prices improve. The total reserve replacement ratio, including dispositions and market factors, is expected to be negative 19% of 2015 production.
Final information related to the company’s 2015 oil and gas reserves, as well as costs incurred, will be provided in ConocoPhillips’ Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission in late February.
As previously noted, guidance for 2016 capital expenditures has been lowered from US$7.7 billion to US$6.4 billion, primarily driven by reduced activity in the Lower 48. Guidance for 2016 operating costs has been reduced from US$7.7 billion to US$7.0 billion.
Consistent with the capital reductions, the company has revised its full-year 2016 production guidance to be essentially flat with 2015 production of 1,525 million bpd, which excludes 64 million bpd for the full year impact of completed dispositions. 1Q16 production guidance is 1.540 to 1.580 billion bpd.
The company’s 2016 guidance for corporate segment net expense is US$1.0 billion; depreciation, depletion and amortisation is US$8.5 billion; and exploration dry hole and leasehold impairment expense is US$0.8 billion. Guidance excludes any special items.
Adapted from press release by Francesca Brindle
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