ConocoPhillips' (NYSE:COP) second-quarter report was a tale of two companies. Financially, the report was not pretty, with ConocoPhillips reporting a loss of $1.1 billion, which was much wider than the $179 million loss it reported in the year-ago period due to even weaker oil and gas prices. That said, operationally the company's quarter was not that bad, with it making solid progress to improve three key numbers.
1. Surprise! We beat our production guidance
Heading into the quarter, ConocoPhillips expected its output to be in the range of 1.5 million to 1.54 million barrels of oil equivalent per day, or BOE/d. However, that projection was before the Surmount oil sands facility, which is a 50-50 joint venture with French oil giant Total (NYSE:TOT), had to be shut down in early May through mid-June due to the wildfires in Canada. At the time the facility was producing 60,000 barrels per day and was in the process of being ramped up to 170,000 barrels per day as a result of ConocoPhillips and Total recently finishing phase 2.
Surprisingly, those wildfires did not weigh on ConocoPhillips' overall production as much as anticipated. Instead, production averaged 1.546 million BOE/d, which exceeded the high end of its guidance range. Fueling the stronger-than-expected production were recently completed projects, including Foster Creek Phase F with its other oil sands joint venture partner Cenovus Energy (NYSE:CVE), as well as strong performance from its unconventional shale assets. Production within the Cenovus Energy joint venture was particularly strong, with the Foster Creek facility's production up 11% year over year thanks to Phase F while the Christina Lake facility's production was up 8% thanks to an optimization project completed late last year.
2. Surprise! We are lowering our capital expenditures budget again
Because of its guidance beating production, ConocoPhillips raised its full-year outlook. The company now expects production to be in the range of 1.54 million to 1.57 million BOE/d, which is up from its prior forecast for average daily production of 1.525 million BOE/d. What's such a surprise is the fact the ConocoPhillips is accomplishing that while shaving another $200 million off its capex budget, bringing it down to $5.5 billion. The newly revised budget is also well below the $7.7 billion budget the company initially announced last December. Driving the most recent cut is the company's ability to capture additional cost savings through efficiency gains, enabling it to do more with less capital.
3. Surprise! We paid off some debt
Last quarter the company took advantage of its solid credit rating to raise $4.6 billion of low-cost debt to bolster its cash position. In doing so, the company's pushed its total outstanding debt up toward $30 billion, which is well above its $25 billion target, though Conoco made it clear that it wanted to get debt back below the target level as soon as feasible. The company made significant progress on that aim during the second quarter, reducing debt by $800 million thanks in part to a $200 million asset sale.
The company plans to continue to pay down debt by diverting its excess cash flow and asset sale proceeds toward that end. Additional asset sales are already in the pipeline, with the company announcing the sale of its Senegal assets for $350 million earlier this month. That deal puts the company on pace to hit its $1 billion asset sale target for the year.
While its financial performance remains weak due to persistently low oil prices, ConocoPhillips' operations are firing on all cylinders. That is enabling the company to do more with less, which will really pay off down the road once prices improve.