ConocoPhillips reported second-quarter 2020 earnings of $0.3 billion, or $0.24 per share, compared with second-quarter 2019 earnings of $1.6 billion, or $1.40 per share. Excluding special items, second-quarter 2020 adjusted earnings were a loss of $1.0 billion, or ($0.92) per share, compared with second-quarter 2019 adjusted earnings of $1.1 billion, or $1.01 per share. Special items for the current quarter were primarily due to a realized gain on the completion of the Australia-West divestiture and an unrealized gain on Cenovus Energy equity. Cash provided by operating activities was $0.2 billion. Excluding working capital, cash from operations (CFO) was $0.7 billion.
“Headline second-quarter performance was dominated by weak realized prices, coupled with our rational economic action to curtail production in favor of expected higher future prices,” said Ryan Lance, chairman and chief executive officer. “Importantly, our underlying business results were strong, reflecting our ongoing commitment to safely executing our plans and the dedication of our workforce during this challenging time. We are monitoring the market closely to develop a view around the timing and path of price recovery and to guide our corresponding actions. For example, as the market strengthened late in the second quarter, we began reversing our second-quarter curtailments and ramping up production across the Lower 48, Alaska and Canada. Our financial strength, flexibility and portfolio diversity represent a distinct competitive advantage that enables us to navigate and preserve value in this volatile environment.”
Second-Quarter Highlights and Recent Announcements
- Ended the quarter with cash, cash equivalents and restricted cash totaling $3.2 billion and short-term investments of $4.0 billion, equaling $7.2 billion in ending cash and short-term investments.
- Produced 981 MBOED excluding Libya during the second quarter; curtailed approximately 225 MBOED.
- Completed the Australia-West divestiture, generating $0.8 billion in proceeds.
- Distributed $0.5 billion in dividends.
- Announced bolt-on acquisition of adjacent acreage in the liquids-rich Montney in Canada.
Production excluding Libya for the second quarter of 2020 was 981 thousand barrels of oil equivalent per day (MBOED) after curtailments of approximately 225 MBOED, resulting in a decrease of 309 MBOED from the same period a year ago. Adjusting for closed dispositions, second-quarter 2020 production was 957 MBOED, a decrease of 212 MBOED from the same period a year ago. This decrease was primarily due to curtailments and normal field decline, partially offset by growth from the Big 3, in addition to development programs in Canada and Europe. Excluding disposition and estimated curtailment impacts, second-quarter 2020 production was slightly higher than the same period a year ago. There was no production from Libya as it remained in force majeure during the quarter.
In the Lower 48, production from the Big 3 averaged 260 MBOED, including Eagle Ford of 162 MBOED, Permian Unconventional of 52 MBOED and Bakken of 46 MBOED. Lower 48 production included curtailments of approximately 145 MBOED, primarily in Eagle Ford and Bakken. At the Surmont operation in Canada, the company curtailed approximately 30 MBOED. At Montney, ramp up from the initial 14-well pad continued, increasing average production to 14 MBOED with 50 percent of the production from oil and natural gas liquids. In addition, completion operations on the second development pad progressed as planned, with start up on track for the third quarter of 2020. In Alaska, the company curtailed approximately 40 MBOED and completed appraisal testing at Narwhal with encouraging initial results. In China, first oil was achieved from Bohai Phase 3’s third and final platform.
Earnings decreased from second-quarter 2019 due to lower realized prices and lower volumes, partially offset by a change in Cenovus Energy equity market value and a gain from the Australia-West divestiture. Excluding special items, adjusted earnings were lower compared with second-quarter 2019 due to lower realized prices and volumes, partially offset by lower depreciation expense and production and operating expenses associated with the lower volumes. The company’s total average realized price was $23.09 per barrel of oil equivalent (BOE), 54 percent lower than the $50.50 per BOE realized in the second quarter of 2019, reflecting lower marker prices and regional differentials.
For the quarter, cash provided by operating activities was $0.2 billion. Excluding a $0.5 billion change in operating working capital, ConocoPhillips generated CFO of $0.7 billion. CFO included a benefit of $0.2 billion from the sale of product inventory that was written down in the first quarter of 2020, which was offset in operating working capital. The company also generated $0.8 billion in disposition proceeds from the sale of Australia-West. In addition, the company funded $0.9 billion of capital expenditures and investments and distributed $0.5 billion in dividends. The company also made a finance lease payment of $0.2 billion upon acceptance of the extended-reach drilling rig in Alaska.
ConocoPhillips’ six-month 2020 earnings were a loss of $1.5 billion, or ($1.37) per share, compared with six-month 2019 earnings of $3.4 billion, or $3.00 per share. Six-month 2020 adjusted earnings were a loss of $0.5 billion, or ($0.47) per share, compared with six-month 2019 adjusted earnings of $2.3 billion, or $2.01 per share.
Production excluding Libya for the first six months of 2020 was 1,130 MBOED, a decrease of 173 MBOED from the same period a year ago. Adjusting for closed dispositions, production for the first six months of 2020 was 1,089 MBOED, a decrease of 79 MBOED from the same period a year ago. This decrease was primarily due to normal field decline and production curtailments, partially offset by growth from the Big 3, as well as other development programs in Europe, Canada and Lower 48. Production from Libya averaged 5 MBOED for the first six months of 2020.
The company’s total realized price during this period was $32.15 per BOE, compared with $50.55 per BOE in the first six months of 2019. This 36 percent reduction reflected lower marker prices and regional differentials.
In the first half of 2020, cash provided by operating activities and CFO were both $2.3 billion. The company also generated $1.3 billion in disposition proceeds. In addition, the company funded $2.5 billion of capital expenditures and investments, paid $0.9 billion in dividends and repurchased $0.7 billion of shares. Capital expenditures and investments included approximately $0.1 billion for payments toward the 2019 Argentina acreage acquisition and Lower 48 bolt-on acquisitions.
The company continues to monitor netback pricing and evaluate curtailments across our assets on a month-by-month basis. Based on the company’s economic criteria, we restored curtailed production in Alaska during the month of July. We also began bringing some curtailed volumes in the Lower 48 back on line in July and expect to be fully restored in September. At Surmont, the company began restoring production in July though the ramp up will be slower due to planned turnarounds in the third quarter and limited staffing in the field as a COVID-19 mitigation measure.
Upcoming operational activities for the company include several seasonal turnarounds and maintenance projects typically conducted in the second half of the year. These activities are planned in various areas across the company.
Given ongoing variability and uncertainty in the outlook for production curtailments, the company will continue to suspend forward-looking guidance and sensitivities.