Image source: Getty Images.

On one hand, the headline numbers of ConocoPhillips' (NYSE:COP) third-quarter report were not all that good, with the company reporting another billion-dollar loss. However, beneath the surface, several positives showed that the oil producer is making progress on its top priorities. Five numbers from that report stand out, which prove that the company is turning the corner.

Third-quarter production: 1.557 million BOE/d

Heading into the third quarter, ConocoPhillips' guided that output would be between 1.51 to 1.55 million barrels of oil equivalent per day (BOE/d). However, the company was able to beat the top end of that guidance range, delivering third-quarter production of 1.557 million BOE/d. Adjusted for asset sales and downtime, production was up 4% year over year. Driving that better-than-expected result was its resilient lower 48 production as well as growth from development projects, including the first production from the second train of its APLNG project in Australia. This number shows that the company is doing more with less, by squeezing additional production out of its wells.

Full-year production guidance: Increased to 1.565 million BOE/d at the midpoint

As a result of that strong output, ConocoPhillips increased its full-year production guidance range to 1.56 million to 1.57 million BOE/d, or 1.565 million BOE/d at the midpoint. That is up 1% from the midpoint of its previous guidance of 1.555 million BOE/d and well above its initial guidance to deliver flat year over year production of 1.525 million BOE.

Oil producers have been surprisingly resilient this year, with many topping their preliminary estimates. Shale-focused Pioneer Natural Resources (NYSE:PXD), for example, initially expected to deliver 10%+ production growth this year. However, after expectation-beating production in the first two quarters due to robust production from new wells, Pioneer Natural Resources boosted its growth outlook up to 13% for 2016.

Image source: Getty Images. 

2016 capex budget: Down to $5.2 billion

What's even more remarkable about ConocoPhillips ability to increase its production guidance is the fact that its capex budget continues to fall. The company now only expects to spend $5.2 billion this year, down from its initial budget of $7.7 billion. Contrast this with Pioneer Natural Resources, which recently increased its capex budget by $100 million, bringing it up to $2.1 billion.

The shortfall between cash flow and outflows: $0

One of the direct results of ConocoPhillips' ability to increase output while decreasing spending is the elimination of the gap between its cash flow and cash outflows for dividends and capex. During the third quarter, the company generated $1.2 billion in cash flow from operating activities, which allowed it to fully fund $900 million in capex and investments as well as $300 million in dividend payments to shareholders. Further, when adding in asset sales and working capital adjustments, it generated $200 million of free cash flow.

Image source: ConocoPhillips.

Total debt reduction during the quarter: $1.25 billion

As a result of that excess cash flow, as well as surplus cash sitting on the balance sheet due in part to a debt issuance earlier this year, ConocoPhillips was able to retire $1.25 billion in debt shortly after the quarter ended. Once that is added to last quarter's $800 million debt reduction, total debt now sits at $27.5 billion. That pushes the company closer to its goal to get total debt below $25 billion. In fact, when we add in the remaining cash on its balance sheet, the company's net debt stands at roughly $24.4 billion.

Investor takeaway

ConocoPhillips is clearly making progress on its aim to lower the breakeven cost of the business so it can sustainably run at lower oil prices. It is squeezing more out of every dollar of capital, allowing it to produce higher oil and cash flow at current prices than anticipated. These improvements, plus the continued strengthening of its balance sheet and the oil market, position ConocoPhillips to thrive as it heads into 2017.

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