ConocoPhilips Screams Past Street Estimates

Conoco Philips (COP) beat the Street estimates ($2.42) by $0.20 ($2.62). Daily production was 1.79 million BOE a decrease from 1.84 million BOE in the pervious quarter and 2.02 million BOE in Q1 2007. Most of the decrease can be attributed to the expropriation of the projects in Venezuela, as well as unplanned downtime. Net income was $4.14 billion dollars. EPS were up 17%. Good action!

Significantly higher natural gas prices (currently $10.78) contributed to the midstream year-over-year comparisons. In my mind, this completely validates the takeover of Burlington Resources' natural gas reserves, for which the company was severely criticized. The Burlington nat gas reserves were purchased at significantly under $5. Jim Mulva is vindicated and should be recognized for what he is: the best CEO in big oil. Not only is he a great oil executive, he has been outspoken about the environment and the need to address the urgent realities of peak oil.

Knowing the market, COP will trade down today. That said, COP is expected to earn over $10/share this year. How does ConocoPhilips not trade over $100 this year?

Here is the complete earnings release.

Disclosure: I am long COP common stock.

Comments

[AlexS]

Thanks, Michael. Don't know if you keep up with Investor's Business Daily. Great cartoons. Article today about Global Cooling www.ibdeditorials.com/...

[The FItzman]

The author speaks:

One of Gore's presentations talks about how the melting of the ice caps will affect Europe. The consensus amongst climatologist is that the metling of the north pole ice will cause the gulf stream to cool. This will lead to a short term cooling of the prevailing winds and weather to Europe and even the Middle East. As Neil Young would say, "that's innaresting".

Regardless, here's the thing. Global warming, or, if you prefer, climate change, doesn't have the capability of creating economic and social chaos on a mass scale for perhaps 2-3 decades. PEAK OIL, on the other hand, may well do so by 2015. Now, the solutions to both are the same. That said, I make the distinction because it is one of URGENCY. If the US does not get an alternative to the gasoline powered internal combustion engine online, and very very soon, we are gonna be hosed from an economic perspective. Look at France (who IBD loves to criticize), they have electrified their transportation system for people and goods and feed it with nuclear power. Look at Germany - they have increased their use of electrified transportation for people and goods and feed it with wind, solar, and geothermal. Look at the US?! We have a failed ethanol push (just gives us inflation), and if we can't get gasoline at a cheap price, we are just hosed. Period. We have no backup, and no big iniative is even in the beginning phase. Sure the venture capitalist are backing wind and solar and biofuels, but a back of the envelope comupation of the power required for then change will require a government led huge iniatitive in nuclear, wind, and solar on a scale that is truely massive. That said, the government (and media like IBD, WSJ, CNBC) are pretty much in complete denial of peak oil and keep saying "all we have to do is drill more in alaska" or some such bunk. They completely miss the depletion rates in Prudoe Bay, the North Sea, Mexico, Saudi, and now even in some fields in Russia. What we need is for Boone Pickens to take over the media and the US Energy Department for 2 years. Then, perhaps the US would have a chance.

[AlexS]

Basically agree with you. I don't take Global Warming (GW) seriously. GW and the rest are Al Gore's ticket to money and prizes (he's got a trading/credits firm with a Goldman Sachs buddy - lots of money in trading). Congress loves GW because they love taxes and this gives them a rationale. Peak Oil is much more of a problem. If you can show Congress how they can get tax money from Peak Oil then they'll believe in that too. As for the media, most of them are leftist lemmings. I mean, what does a journalism degree mean, anyway? It's not like a degree in science. It basically means you took some courses in how to write things so you don't get sued. What has that to do with writing about anything with intelligence?

[AlexS]

Michael, I was curious what you think about the upcoming election and if Obama or Clinton wins it, in terms of all their dislike of big oil (threats of more taxes, etc.). I'm also long on COP and other oils. One of my favorite sectors. But it won't be my favorite if Obama etc. use it as their cash cow.

[The FItzman]

How illogical is it from Congress to TAX the producers of oil when there is an issue with supply meeting demand? If they are stupid enough to do this, the oil producers in order to maintain profits and pay out their dividends will simple cut back on E&P, supply will contract further, and it will make the peak oil crisis worse, not better.

That said, I have to believe both Clinton and Obama are trying to get votes. Don't get me wrong, I think Obama is the best candidate by far (can we afford a continuation of Republican policies that have decimated the value of the US dollar, put us in the biggest fiscal deficit in the history of our country, failed to enact a real energy policy, and caused inflation to rage?). Once the next president takes office, the oil companies will make it clear that the president needs them more than they need the president.

btw, your earlier replied seemed to insinuate i don't take global warming seriously. i DO take global warming seriously, and i think the CO2 levels in the ice core samples (as Gore presented) prove without a doubt that it's real, it's manmade, and we are at CO2 levels orders of magnitude above the "norm". my point was, people think we have decades to get off fossil fuels, and that is an incorrect impression: we'll get off fossil fuels much sooner than that since by 2015, if we don't do something to address peak oil, the economy will completely tank, and we'll slip into the abyss...

[AlexS]

No, that's not what I meant about global warming. I am the one who doesn't take global warming seriously. In part because we can do very little about it. In part because I think warming is more a function of sunspots than CO2. And in part because I am a scientist and for Al Gore and the media to say the science is decided is almost personally insulting. But I agree with you that Peak Oil is much more of a problem, and a solution to one will help the other. Politically I don't have faith that Obama will accept that he needs the oil companies more than they need him. After all, Congress (except for the Gingrich Congress) for the last 30 years has thought that we don't need to drill ANWR or the OCS, with the results that we see today. And the politicians still say (and the media echos) that the solution is for George Bush to give the Saudis a good talking-to, to have more Congressional hearings, and to burn our food. I think it'll just get worse (perhaps much worse) under Obama (consider that the price of crude has gone up $60 in the 15 months since the Democrats took office after their 2006 big win). But for now, I'm just thinking about what it means in terms of oil investments.

[The FItzman]

I guess it's just me & you on here Alex, so let's continue our discussion. I have yet to find one person yet (and perhaps you will be the one) who can, scientifically, refute the carbon dating data of the ice core samples. This data, which has been independently collected and verified by multiple international teams, on both the north and south pole, shows, conclusively that:
1) abnormal levels of CO2 began to develop about the time man began burning coal in significant quantities
2) increased significantly more when automobile transportation began in earnest
3) and has, almost exponentially (in terms of the history of the planet) increased since the beginning of the industrial revolution until today.

the ice core samples prove this so convincingly that, as a scientist, one must be able to:

1) refute carbon dating as a method (not likely)
2) prove a conspiracy amongst multiple independent international teams (more likely than 1) above, but still not very likely) or
3) prove that something other than burning fossil fuels caused the jump

now, sun spots have been happening for billions of years, so why don't the ice core samples reflect that? well, they don't. also, the excuse rush limbaugh and such "non-believers&qu... use that "hey, there were volcanos that erupted and put larger amounts of CO2 in the air than there is today. well, the ice core samples prove that this indeed took place from time to time. the difference is, the CO2 levels soon dropped back to normal. what we are seeing NOW is CO2 levels that are **orders of magnitude** above historical norms of the planet and they are ** increasing ** at a very fast rate, not decreasing. i suppose, for these reasons, 95% of climatologist are in agreement over the issue. yeah, there is the one MIT expert that is being paid huge sums by XOM to refute it, but i think by now (even G.W. Bush) everyone realized these guys are paid stooges and they have been marginalized by the thinking world.

wrt energy investments, they are pretty near the only things to invest in. as long as the government, media, and people of the US ignore peak oil, the worse our economy will get, the more the US dollar will fall in value, the higher inflation will go, and the worse the "market" (as in S&P500) will perform. what i can't understand is how a company like COP, which produces oil & gas, much of it domestically, can earn $10/share this year and trade at $83. it should be at $125, and will be as soon as wall street figures out it isn't "speculation"... that is driving oil and gas prices, it's the long term supply/demand realities of peak oil.

by the way, you can't be serious about putting another "republican" in office can you? our latest so-called "conservative republican" (bush) has:

1) run up the biggest fiscal deficits in the history of the world
2) caused the US dollar to drop 50% in value
3) opened our borders up to illegal aliens
4) let the federal reserve (small letters) bail out a *private investment* publically traded firm (bear stearns) with taxpayer money!?! (un-friggin believable). now wall street makes all the profits if they are successful, if not, the middle class (what is left of us...) taxpayers bail them out. wonderful.
5) enacted an "energy policy" (ethanol) which is one of the most assinine and destructive policies ever
6) resided over a stock market that, once adjusted for inflation and the fall of the US dollar, done worse than nothing (negative) return in his nearly 8 years in office
7) inacted the most insane foreign policy in the history of the country by fighting two (count em, 2) unconstitutional wars (Congress has STILL not declared war on either Iraq or Afghanistan).
8) pissed every friend we had, til we don't have any more

do you seriously want a continuation of these policies going forward? if you do, don't vote for obama. if you want a change, vote for him. he is our only hope of the 3, and it's a slim hope in reality. we KNOW what the other two will be (more of the same).

thanks.

mike

[AlexS]

Mike. OK, briefly. Global Warming. From what I understand the ice core data shows higher CO2 concentrations along with higher earth temperatures. The common explanation is that the CO2 caused higher temps. I think it more likely that higher temps caused more atmospheric CO2. This and some other ideas are set forth in books, dvds, etc., but these are not well covered by the media. The reason they are not is that the mainstream media as I can see it is almost unanimously politically liberal. Unfortunately, the politically liberal side of politicians sees Global Warming as a chance to raise taxes on anything that produces CO2. If it were taught that global warming is produced because of lesser or more sunspots (a theory I agree with), then there really wouldn't be anything to tax, so for liberal politicians the theory must go the way it's been presented in order to have higher taxes. You can see some of the alternative explanations in, for instance 1) a dvd - The Great Global Warming Swindle, 2) magazines - National Review, the Weekly Standard, 3) newspaper - Washington Times, 4) web sites - Senator Jim Inhofe's (R-OK) site, Investors Business Daily (IBD), National Review and Weekly Standard online, Michael Crichton's speeches, demanddebate.com, 5) books - The Satanic Gases, anything by Bjorn Lomberg. If you want to check into these you'll see the other side, the other side from what is presented by Al Gore, the New York Times, Associated Press, ABC, Time magazine, Yahoo, etc.

[AlexS]

As for energy, here we use two basic kinds of energy. Solar power in some form, and nuclear. We have a little tidal production (from gravitational energy) but solar and nuclear predominate. Solar in this case includes oil, gas, direct solar, wind, biofuels. Our energy rich society is made possible by fossil fuels, laid down over millions of years as a result of decaying plants and animals (that got their energy from solar power). The energy was laid down over millions of years but we've used it in hundreds of years. Therein lies the replacement problem. Solar energy itself is diffuse, seasonal, varies by the hour and day, and needs a lot of land (or sea) area to collect a substantial amount. Collecting it in one form or another is possible but doesn't yield much, and the land area required is great. We've only had an energy rich society because each year we use what is essentially hundreds or even thousands of years of ancient stored solar power. We can't replace this by anything that represents solar power from a year's production (like biofuels). We can't go from using a thousand years worth of stored solar power to a single year's worth of solar power, regardless of whether we try to do that with crops, trees, wind, direct solar, etc. Thus, the short (and probably long) terms answer is nuclear power.

[AlexS]

As for your discussion of the candidates, I'll just say that the President's power is not as great as you present. The Federal Reserve is essentially independent. Spending bills originate from Congress. There has been a relative standoff recently because we have a Democratic Congress (which we surely will have after 2009) and a Republican President. George Bush hasn't been nearly as conservative (or as libertarian) as I would have preferred. So, for instance, last year Bush signed what I think is an awful energy bill, as well as an awful student loan bill. Two examples. A more conservative politician would have nixed them both.

[AlexS]

But, getting back to energy and candidates, if we accept Peak Oil, and accept the energy paradigm as I've laid out, we have to see what they think of nuclear power as a large deciding factor. On this McCain I think has been a consistent supporter of nuclear power. He's against ANWR drilling, like the others, which I think is a mistake. But on nuclear he's good. If you read Obama's stand on nuclear (from his web site), he says he's for safe nuclear as long as .... and then you get four conditions unlikely to be fulfilled. He's against using Yucca Mountain, for what he says are technical reasons, but we all know really it's because Harry Reid is against it. His answers to energy questions are to convene meetings of all the world leaders ...... etc. And lots of rhetoric about 21st century, safe, reliable ... etc., ... and lots of buzz words that no one could possibly disagree with. A lot of empty phrases. Unfortunately, if he is elected, he will have a Democratic Congress that is in tune with his proposed inaction. If McCain is elected, well, there will still be a fight, but at least one of the major players in the Presidency and Congress will be for developing nuclear power. We may not be able to solve this until the anti-nuclear people are gone from Congress. We may not be able to solve it in time. With McCain there's a chance. Unless Obama has some thoughts in his head that are at odds with everything he's said and voted for/against up till now, and unless he turns out to be an actual leader in contrast with what he's done with his life up until now, with Obama we will have 4 or 8 years of wasted time. If people think the Jimmy Carter years were bad (high energy prices, high inflation, high unemployment, high "misery index") just wait till they see what Obama and a Democratic Congress bring.

[AlexS]

I see that Nancy Pelosi has sent John Boehner a letter outlining what her Congress has done to reduce gas prices, etc. Their bills are:
1. HR2264 - have DOJ sue OPEC.
2. HR1252 - have the FTC investigate big oil.
3. HR5351 - take away tax credits from big oil for domestic oil production.
4. Market manipulations part of Energy Act of 2007 - have the FTC investigate market manipulations of energy.
5. This just in - Chuck Schumer (D-NY) wants the White House to tell the Saudis, etc. we won't sell them weapons unless they lower oil prices. I mean, it's not like they could buy weapons from Europe or Russia or China, right, Chuck?

What a great plan, he said sarcastically.

[Jake2]

Alex S: Ho Hum . . . .

[swimjames]

Floyd Brown quote: Conoco (NYSE: COP) is the cheapest of the large integrated oil companies. COP is trading just over 10 times earnings. Conoco has had year-over-year quarterly revenue growth of almost 30%. Return on equity is 14%, but cost-cutting and consolidation of past acquisitions is paying huge benefits. Because of a larger exposure to cracking spreads from refining, Conoco will remain healthy even if oil prices slide somewhat.