ConocoPhillips reduces 2016 capex, aims to return more cash to shareholders

ConocoPhillips on Thursday reported a wider-than-expected quarterly loss as the company lowered its planned capital expenditures for the year but increased its production forecast for 2016.

During its conference call, executives also laid out a plan to increase payouts to shareholders as prices recover.

The share price was were down marginally on Thursday.

For the second quarter, ConocoPhillips reported a loss of 86 cents per share, or $1.1 billion.

Earnings adjusted for certain expenses showed a net loss of 79 cents. Analysts expected a loss of 61 cents a share, according to Thomson Reuters.

The report marks the fifth-straight quarterly profit loss for the Houston-based company amid a protracted price rout. ConocoPhillips reported a loss of 15 cents per share, or $179 million, in the year ago period.

Ryan Lance, CEO of ConocoPhillips Inc.
Chris Goodney | Bloomberg | Getty Images
Ryan Lance, CEO of ConocoPhillips Inc.

The world's largest independent exploration and production company further lowered its capital expenditure plan for 2016 to $5.5 billion from a previously stated $5.7 million. It had lowered its guidance in each of the last two quarters.

Still, the company increased its full-year production guidance to 1.540 million to 1.570 million barrels of oil equivalent per day.

"The price environment remains challenging, but our business is running well and we continue to beat our production, capital expenditures and operating-cost targets," ConocoPhillips CEO Ryan Lance said in a statement.

In a note, Wells Fargo said the reduced capital and operating expenses and higher-than-expected operating cash flow — $1.23 billion versus Wells' projection for $1.14 billion — compensated for the earnings miss.

"Through a disciplined capex approach and the reduction of operating costs, [ConocoPhillips] provides near-term stability while preserving future growth opportunities," Wells wrote.

More shareholder payouts coming

The company said Thursday it would try to achieve "annual real dividend growth," meaning the payout would have more purchasing power in light of inflation. But ConocoPhillips does not plan to raise the absolute level of the dividend from 25 cents a share.

"We're not going to be trying to increase the dividend annually to get to the place we were before we cut the dividend," Lance said.

Instead, Lance said ConocoPhillips would seek to return 20 to 30 percent of free cash flow to investors through occasional share buybacks. He said executives would determine when it would make those payouts based on the price of oil and the value of its shares.

"As prices recover, the dividend payout we have today doesn't represent enough return to shareholders in a recovering price scenario," Lance said.

The first round of buybacks would be aimed at offsetting any share dilution related to ConocoPhillips' employee-based stock ownership plan, Lance explained. The company would also prioritize the payouts over investing in its portfolio, but could do both under the right circumstances, he added.

Prices for products fall

Revenues for the quarter came in at $5.575 billion, down nearly 36 percent from a year ago, due largely to ConocoPhillips earning less for its products. Its total realized price was $27.79 per barrel of oil equivalent, down from $39.06 in the year-ago period.

ConocoPhillips produces crude oil, natural gas, liquid natural gas, and bitumen. The company produced 1.546 million barrels of oil equivalent per day in the third quarter, down 49,000 from the same time last year.

Like other upstream exploration and production companies, ConocoPhillips has implemented cost-saving measures to weather the nearly two-year downturn in oil prices.

U.S. crude prices rebounded about 85 percent from the lows of January through the end of the second quarter, but remained about $60 a barrel below their 2014 peak prior to the downturn.

Last week, ConocoPhillips confirmed it plans to lay off about 1,000 employees, or 6 percent of its workforce. The payroll reductions will primarily impact North America and bring total jobs cuts since 2015 to roughly 4,600.

The company this month sold its interest in a batch of exploration blocks off the coast of Senegal as part of its phased exit from deepwater exploration announced last year.