ConocoPhillips (COP -0.43%) is having an impressive year. The U.S. oil giant not only reported expectation-beating financial results in both quarters so far but achieved its debt-reduction target 18 months early. That has enabled it to ramp up cash returns to shareholders by boosting its buyback plan to $15 billion and increase its dividend for the second time this year. Those factors are among the many reasons ConocoPhillips' stock price has rocketed more than 30% this year.
The company could potentially add even more fuel to continue rallying later this week when it announces its third-quarter results. Here are three things to keep an eye on in that report, which could determine what direction shares go from here.
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1. Check whether production was within its guidance range
In the second quarter, ConocoPhillips produced an average of 1.211 million barrels of oil equivalent per day (BOE/D), which was just above the top end of its guidance range and 5% higher than the year-ago period after adjusting for asset sales. Driving that strong showing was the company's big-three shale plays (Bakken, Eagle Ford, and the Permian Basin), where production rocketed 37% year over year due to strong drilling results. In addition to that, the company got a boost from buying out Anadarko Petroleum's (APC) interest in their Alaskan partnership.
ConocoPhillips expects its output to continue expanding in the third quarter, with the company guiding for it to be between 1.215 to 1.255 million BOE/D. Ideally, production will come in at least around the midpoint of that range due to continued strong drilling results, which would keep the company on track to achieve its full-year target. If that's not the case, investors should look at what caused output to miss the mark.
2. Check how its profits compared to analysts' expectations
Analysts currently expect ConocoPhillips to earn an adjusted $1.18 per share in the third quarter. While that would be slightly higher than the $1.09 per share it hauled in during the second quarter, it's worth pointing out that ConocoPhillips' earnings have outpaced analysts' expectations both times this year and in three of the last four quarters. Because of that, investors should see if the company was able to beat the consensus estimate once again or if it missed their forecast.
If earnings fell short, investors should look at what might have caused a weaker-than-expected result, paying close attention to its production total as well as its expenses. The company did note last quarter that inflation was starting to drive up costs, which might start eating into earnings. On the other hand, if profits came in ahead of expectations, investors should see if that was due to stronger production growth or the company's ability to keep a lid on costs.
3. See if the company made any more changes to its capital budget
One item that the company noted was starting to inflate was its capital expense budget, which it increased from $5.5 billion to $6 billion in the second quarter. In addition to an inflation-driven boost in some costs, another cause of the higher capital spending level was that some of its partners were increasing their drilling plans for the year, which forced ConocoPhillips to raise its spending on those projects.
ConocoPhillips wasn't the only driller to boost its budget in the second quarter due to these same issues, as Anadarko Petroleum, for example, added $250 million to its 2018 spending plan. However, other rivals such as Marathon Oil (MRO -1.04%) were able to keep their spending plans flat despite the headwinds of higher costs and increased activity by their drilling partners. Because of that, investors should see if ConocoPhillips' drilling budget continued to rise in the third quarter or if the company was able to keep a lid on spending like Marathon Oil did last quarter.
Cautiously optimistic heading into the report
ConocoPhillips has outpaced expectations in each of the first two quarters of 2018. Because of that, optimism remains high that the company can continue that trend in the third quarter. That could lead to some disappointment if the company misses the mark, which could cause shares to give back some of their recent gains. However, if that were to happen, it could represent a good opportunity to buy shares of this top-tier oil stock at a lower cost.
