ConocoPhillips (COP) said oil and natural gas production in 2013 will reach a low point during a multi- year restructuring and asset sales program, prompting the biggest drop in the company’s share price since 2011.
Daily output from continuing operations may decline to as little as 1.475 million barrels of oil equivalent this year because of production lost through asset sales, compared with 1.527 million barrels in 2012, Houston-based ConocoPhillips said in a statement yesterday. When counting only the assets that will remain in ConocoPhillips’s portfolio, last year’s production was 1.497 million barrels a day, the company said today.
By the end of the year, the company will see production growth from new projects and some North American programs, Chairman and Chief Executive Officer Ryan Lance told analysts on a conference call today. The company said it still expects to achieve a goal of boosting production by 3 percent to 5 percent compounded annually in future years.
“Production will decline in ’13, and they will need to show as we move forward that they can grow off that 2013 base,” said Brian Youngberg, an analyst with Edward Jones in St. Louis who has a buy rating on ConocoPhillips shares and owns none.
ConocoPhillips fell 5.1 percent to $58 at the close in New York. The stock earlier fell as much as 5.4 percent, the biggest intraday drop since Aug. 18, 2011.
The company is the largest U.S. oil and gas producer, based on market value, that doesn’t have refineries or a chemical unit. ConocoPhillips has been selling assets and remaking itself for more than three years as it seeks to boost returns for shareholders and focus on its most profitable holdings.
On Jan. 15, ConocoPhillips said it agreed to sell certain assets in North Dakota and Montana, bringing to about $12 billion the sales it’s announced since the start of last year and surpassing a target of $8 billion to $10 billion for 2012 and 2013 combined. The company said it may still look to reduce its holdings in oil sands and the Australia Pacific liquefied natural gas project.
Providing production forecasts has been tough because of uncertainty about which assets were going to be sold, Chief Financial Officer Jeff Sheets said in a telephone interview today. The picture is clearer now, though the timing of some sales still isn’t certain. ConocoPhillips now sees growth beginning toward the end of 2013, he said.
“This is the same message we’ve been talking about over the long term,” Sheets said. “Our long-term production outlook has not changed.”
The company believes its strategy for production growth is the right one, and it sees value in the diversification and size of its portfolio, Sheets said.
ConocoPhillips created a separate company, Phillips 66 (PSX), by spinning off its refining, chemical and pipeline businesses April 30. Fourth-quarter net income at ConocoPhillips didn’t include earnings from its former operations, though they were included in results a year earlier.
ConocoPhillips reported yesterday that fourth-quarter profit fell after it lost the income of its refining business in last year’s spinoff, and growing North American supplies of oil and gas pushed down prices.
Net income dropped to $1.43 billion, or $1.16 a share, from $3.39 billion, or $2.56, a year earlier, the company said. Profit excluding one-time costs and gains fell to $1.76 billion, or $1.43 a share, from $2.05 billion, or $1.55. Adjusted per- share profit in the quarter was a penny more than the average of 18 analysts’ estimates compiled by Bloomberg.
The company reported a drop in realized prices from a year earlier across parts of its portfolio, including a 2.7 percent decline in crude to $103.08 per barrel. Natural gas liquids prices fell 18 percent, while bitumen prices tumbled 31 percent. ConocoPhillips’s daily production in the fourth quarter climbed less than 1 percent to the equivalent of 1.607 million barrels of oil.
Adjusted revenue climbed 1.5 percent from a year earlier to $16.4 billion in the quarter.
The company continued to shift its focus to oil and liquids. In Canada and the lower 48 U.S. states, the liquids percentage of production rose to 48 percent from 43 percent. ConocoPhillips said output is rising in its Eagle Ford and Bakken holdings in the U.S.
Asset sales have boosted the outlook for ConocoPhillips’s ability to fund projects and dividends in the next few years, James Sullivan, an analyst with Alembic Global Advisors in New York, said before the earnings were announced.
In a note today, Sullivan called the share decline “unwarranted,” adding that any production growth this year would be positive given the effects of asset sales and downtime related to new facilities.
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