Source: ConocoPhillips

While ConocoPhillips (NYSE:COP) hasn't been immune to the oil market downturn, the oil and gas driller is muting some of its impact thanks to stronger than expected operations. Those operations were on full display in the company's second-quarter report, which beat expectations.

Drilling down into the numbers
While on the surface it would seem that ConocoPhillips reported an awful quarter as it was saddled with a second quarter loss of $179 million, or $0.15 per share, there's a lot more to the story here. That's because the company didn't actually lose money during the quarter, if fact, after adjusting for one-time, non-cash items the company's earnings were $81 million, or $0.07 per share. While that's well below the $2 billion, or $1.61 per share in adjusted earnings the company produced in the year ago quarter, its earnings this quarter were actually three pennies better than what analysts were expecting. Further, actual operational cash flow totaled $2 billion. While that wasn't enough to completely cover the $2.4 billion in capex nor the $900 million in dividend payments, that was to be expected as the company isn't expected to cover both until 2017 under the current plan.

Fueling this better than expected result was the company's production, which averaged 1,595 MBOE/d, which was right at the high end of the company's guidance range. The big driver here was the company's onshore drilling activities in the U.S. as production was driven by a 16% year-over-year increase from the Eagle Ford and Bakken shale plays. Also strong was the company's Asia Pacific and Middle East region where total production jumped 27% year-over-year as a result of several major projects coming online.

In addition to stronger production, ConocoPhillips' earnings and cash flow benefited from cost savings. The company's operating costs were 11% lower year-over-year. As a result of these lower costs, plus plans for future improvement for the balance of the year, the company is lowering its operating cost budget from $9.2 billion to $8.9 billion.

A look ahead
ConocoPhillips continues to position the company "for a period of lower, more volatile prices" according to comments made by CEO Ryan Lance in the earnings release. Because of this view, the company is trimming its capex budget once again lopping off another half billion dollars, bringing the total planned spend to $11 billion for the year.

Some of this reduction is coming from the company's recent retrenchment from its offshore exploration program. However, just as operating costs are falling, the company is also seeing some cost reductions in capex, which is enabling the company to drill the same number of wells for less money. That's why despite the capex cut ConocoPhillips is on track to hit the higher end of its 2015 production guidance of 2%-3% year-over-year growth.

That being said, next quarter the company does expect its production to decline a bit sequentially as it's in the middle of some maintenance projects that will result in some production coming offline. This is expected to lead to production being in the rage of 1,510-1,550 MBOED during the quarter. Fourth-quarter production, on the other hand, is expected to be much higher as those turnaround activities will be complete while major projects like Surmont 2 and APLNG will be online and ramping up production.

Investor takeaway
While ConocoPhillips earnings are being weighed down by weaker oil prices, the company's cost reductions muted some of that impact enabling the company to beat estimates. Unfortunately, the company doesn't see a quick rebound in the price of crude, which is why it's pulling back a bit more on spending. However, despite the cuts the company still expects to hit the high end of its 2015 guidance as efficiency gains are yielding more oil production for less money.