The Rising Influence of Rising Affluence

[DewDiligence]

COP Reports Higher Earnings, Lower Production in 4Q10

[COP had a decent quarter while it continued to execute on the radical change in strategy announced in Mar 2010, which calls for $10B of cumulative divestitures to be applied to increasing dividends and share buybacks (#msg-48227811). In 4Q10, refining operations showed the biggest YoY improvement, swinging back to profitability after having lost money in 4Q09. 4Q10 non-GAAP EPS was $1.32 and production was 1.73 boe/d, down 5% from 4Q09 due to divestitures, changes in PSA’s due to higher oil prices, and natural aging of fields. In 4Q10, 26% of COP’s production came from North American NG.

COP’s equity stake in Lukoil was down to 2% at 12/31/10 and is expected to become zero by the end of 1Q11. (In according with GAAP, when COP’s Lukoil stake fell below 20%, COP stopped reporting a pro rata share of Lukoil’s earning on COP’s own income statement, which reduced EPS.)

Despite the aggressive divestment program, COP still has a heavy debt load comprising about 25% of total capital. The high financial leverage means that COP will probably move more sharply in response to changes in oil and gas prices than such companies as XOM and CVX, which is one of the attractions of the stock for some investors. However, one can achieve a similar risk profile to COP by owning such stocks as XOM or CVX using a modest amount of margin leverage, so I find it hard to make a case for being long COP. For a higher-risk name that is more strongly tied to E&P, I much prefer HES.

COP’s own 4Q10 PR is at http://finance.yahoo.com/news/ConocoPhillips-Reports-bw-560632735.html?x=0&.v=1 .]

http://www.reuters.com/article/idUSN2627878320110126?feedType=RSS&feedName=rbssEnergyNews&rpc=43

›Wed Jan 26, 2011 9:02am EST

HOUSTON, Jan 26 (Reuters) - ConocoPhillips (COP), the third-largest U.S. oil company, reported a 54 percent increase in quarterly profit on Wednesday as proceeds from asset sales and higher crude prices and refining margins boosted results.

Conoco has an ongoing program to shed assets it believes are better suited for others as the oil company focuses on improving returns by cutting debt and buying back shares. As expected, those sales have hit the Houston company's oil and gas output and reserve growth.

Profit in the fourth quarter was $2 billion, or $1.39 per share, compared with $1.3 billion, or 86 cents per share, a year earlier. Fourth-quarter 2010 adjusted earnings were $1.9 billion, or $1.32 per share, compared with of $1.8 billion, or $1.20 per share a year ago. Analysts on average had expected a profit of $1.32 per share, according to Thomson Reuters I/B/E/S.

Oil and gas output in the quarter was 1.73 million barrels of oil equivalent (BOE) per day, down from 1.83 million BOE per day in the same period in 2009.

Revenue was $53.2 billion, up from $43.7 billion a year ago.

Conoco said a significant portion of its $10.4 billion in cash and short-term investments will be used for more share repurchases.‹