ConocoPhillips Has Surprisingly Strong Earnings Despite Crude's Crash

Crude prices crashed during the first quarter, devastating the oil sector. Several oil companies have already filed for bankruptcy, while most others have had to slash spending, shareholder payouts, and production. ConocoPhillips (COP -0.55%) certainly hasn't been immune to this downturn. It reduced its drilling budget twice, suspended its share repurchase program, and curtailed some output.

But the company has still weathered this storm much better than most, which was clear in its first-quarter earnings.

Drilling down into ConocoPhillips' first-quarter earnings

Data source: ConocoPhillips. BOE/D=barrels of oil equivalent per day. 

ConocoPhillips delivered production toward the top end of its guidance range during the first quarter. While it was about 40,000 BOE/D below last year's level, that's mainly due to asset sales. Adjusting for these losses, production increased by 52,000 BOE/D thanks to growth in its Big Three U.S. shale plays (Bakken, Eagle Ford, and the Permian Basin). The company also delivered solid results in its development programs in Europe and the Asia-Pacific region, which more than offset natural oil-field declines and a third-party pipeline outage in Malaysia.

Despite lower oil prices, ConocoPhillips generated $1.6 billion in cash from operations, which was enough to fully fund its capital expenditures and land acquisitions. The company also closed $500 million in asset sales. After paying $500 million in dividends and repurchasing $700 million in shares, ConocoPhillips ended the period with $8 billion in cash and short-term investments.

Image source: Getty Images.

A look ahead

ConocoPhillips previously announced that it had suspended its share repurchase program, reduced its capital budget by 35% to $4.3 billion, and planned to curtail oil production by 225,000 barrels per day (BPD). But with the COVID-19 outbreak causing a glut of oil, which is filling storage to the brim, the company plans additional production cuts to help ease some of the pressure on oil prices.

For May, ConocoPhillips now plans to voluntarily curtail 265,000 BPD (230,000 BPD on a net basis). This output reduction includes 100,000 BPD at its Surmont facility in Canada and 165,000 BPD in the lower 48 states (an increase from its prior plan of 125,000 BPD). In June, the company plans to curtail 460,000 BPD (420,000 BPD on a net basis). Those cuts include 100,000 BPD at Surmont, 260,000 BPD in the lower 48 states, and 100,000 BPD in Alaska.

The company will make future decisions on voluntary production cuts on a month-to-month basis, depending on market conditions. Because of these curtailments and the ongoing volatility in the oil market, it suspended its guidance for 2020.

But ConocoPhillips did maintain its quarterly dividend at $0.42 per share. Unlike a growing number of oil companies, it's able to continue paying at its current rate thanks to the strength of its balance sheet. It entered this downturn with the second-lowest leverage ratio in its peer group and has a massive cash cushion.

Using its flexibility to handle the oil market's challenges

ConocoPhillips spent the years since the last oil market downturn building a company that could withstand the next one with ease. One of the defining characteristics of the company is its tremendous flexibility. Not only can it quickly adjust spending and production to market conditions, but it also has the financial cushion to maintain its dividend during these uncertain times. Those factors make it stand out as one of the best-positioned oil stocks to weather this current market downturn.