ConocoPhillips (COP)

Q2 2012 Earnings Call

July 25, 2012 11:00 am ET

Executives

Ellen DeSanctis

Ryan M. Lance - Chairman, Chief Executive Officer and Chairman of Executive Committee

Jeffrey Wayne Sheets - Chief Financial Officer and Executive Vice President of Finance

Analysts

Faisel Khan - Citigroup Inc, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Edward Westlake - Crédit Suisse AG, Research Division

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Jason Gammel - Macquarie Research

Blake Fernandez - Howard Weil Incorporated, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Iain Reid - Jefferies & Company, Inc., Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Guy A. Baber - Simmons & Company International, Research Division

Presentation

Operator

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Welcome to the Q2 2012 ConocoPhilips Earnings Conference Call. My name is Kim, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Ellen DeSanctis, Vice President, Investor Relations and Communications. Ms. DeSanctis, you may begin.

Ellen DeSanctis

Thank you, Kim, and good morning to everybody. Again, thank you for joining us on this ConocoPhilips second quarter earnings call. I'm in the room today with Ryan Lance, our Chairman and CEO; and Jeff Sheets, our EVP and Chief Financial Officer. And before I turn the conference over to those 2 gentlemen, let me make a few administrative comments.

First of all, we -- you'll notice, we've provided a lot of new information with today's disclosure. And of course, that's to help you understand the business better. We've provided segment data on each of our regions in addition to some data on our Corporate statements, and I just want to let people know, Vladimir and I will be available after the call to help you sort through those details as needed. In addition, I want to remind you that our presentation materials for the call today can be found on our website and a transcript to this call will be posted again to our website, hopefully by no later than tomorrow morning.

And then finally, if you'll advance to Slide 2, you'll note our cautionary statement. We will make some forward-looking statements during today's webcast and actual results could differ materially from the expectations we shared today. The factors that could cause these results to differ are listed in this cautionary statement, as well as in our periodic filings with the SEC.

And now, it is my pleasure to turn the call over to Ryan Lance.

Ryan M. Lance

Thank you, Ellen, and thank you all for joining the call today. So I reflect back and in mid-April, we laid out our plans for the newly independent ConocoPhilips and today represents our first quarterly call to update you on those plans. I'm looking forward to your questions at the end as well. So I'll begin my comments on Slide 3 and cover some of our key second quarter highlights.

Strategically, the second quarter was certainly an eventful one. Less than 100 days ago, we completed the spinoff our Phillips 66 company. And while we were prepared for the event, it's really hard to know until that event actually shows up how things go. But I'm pleased to say, that I think we hit the ground running, and I certainly couldn't be prouder of our employees. They certainly stepped up in a pretty big way.

So in addition to completing the Phillip 66 spinoff, we continue to make progress on our divestiture program. This is a strategic program that's important for completing the repositioning of the ConocoPhilips and adding financial flexibility to the company. In the quarter, we generated about $0.5 billion of proceeds from asset sales in the North Sea, and we continue to advance our progress on other assets. We still estimate that our announced program will be complete by mid-2013.

I also include a point about our unconventional and our conventional exploration program as a strategic highlight. We made progress in the corner -- in the quarter on these important activities with more to come in the year. And I'll speak about our exploration activities in more detail in a moment because this is an important part of our plans for the future, and we have a lot of going on in this area.

Operationally, the business ran well in the quarter. We achieved the high end of our estimated production range for the quarter at 1.54 million barrels equivalent per day. key production highlights include our ongoing strong performance from unconventional assets in the Lower 48, led by our Eagle Ford development and from our oil sands in Canada. Our major projects have progressed notably, our APLNG and in the second quarter, we advanced at Train 2 towards FID and recently announced that milestone.

Both Jeff and I will cover some additional details about our operational performance in later comments.

Moving to the financial themes. Clearly, our strong operational quarter was overshadowed by weaker commodity prices. This translated to lower income and cash flow for the quarter compared to prior periods. It's important to note that our diversified portfolio helped buffer some of the impact of weaker North American commodity prices. This allowed us to generate $1.5 billion of adjusted earnings or $1.22 of adjusted earnings per share. Excluding working capital, we achieved $3 billion in cash from operations. What's important to note is that this cash flow number reflects the fact that we had a number of high margin production offline due to planned turnarounds in this quarter. In other words, the $3 billion should not be considered ratable.

And finally, we purchased 3.1 billion of ConocoPhilips shares in the quarter, representing a total of about 52 million shares and through 6 months, we've delivered on our goal of repurchasing $5 billion worth of shares.

So in summary, we had a strong quarter strategically and operationally, delivering on several important fronts. While commodity prices softened, we stayed focused and delivered on things we can control to meet our commitment for growth, financial returns and yield over the long-term.

So if you turn to Slide #4, I'd like to address the state of the business and put some perspective around the focus areas and the priorities for the rest of the year and beyond. As I already mentioned, the business is running well and that's absolutely key. We are focused on delivering our programs and plans safely, on-time and on budget. Our major growth projects are on track and these include our Lower 48 unconventional resource plays, as well as our major growth projects in the Canadian oil sands, the North Sea projects in the U.K. and Norway, APLNG and our Malaysian deepwater projects. These are the major projects that will underpin our long-term goal to deliver 3% to 5% with margin expansion at flat prices.

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