ConocoPhillips (COP) Earnings & Analysis

Latest quarter

ConocoPhillips reported second-quarter revenue of $19.5 billion, above the $17.5 billion consensus. Adjusted earnings of $3.24 per share also beat the consensus of $2.96. Revenue rose from $14.7 billion a year earlier, while diluted earnings per share increased to $3.23 from $1.56.

The company’s earnings benefited primarily from higher oil and gas prices. Operating margin rose to 32.5% from 22.7% a year earlier, while gross margin was 65.2%, compared with 65.0%. On the call, Andy O’Brien said production exceeded the company’s guidance range, with Permian output contributing to the result.

The quarterly free-cash-flow figure was $4.6 billion, compared with $905.0 million a year earlier. On the call, O’Brien reported $4.2 billion of free cash flow after $3 billion of capital spending. He said the company distributed $3 billion to shareholders, including $2 billion in repurchases and $1 billion in ordinary dividends.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the call, CFO and incoming CEO Andy O’Brien said second-quarter production exceeded guidance because of operating performance across the portfolio, including the Permian. He expected a Qatar production ramp and continued Lower 48 growth to lift third-quarter output, more than offsetting the effect of non-core asset sales in July.

Asked about Qatar, operations executive Kirk Johnson said production had been largely shut in during the second quarter, but the company completed a planned turnaround during the downtime. He said the third-quarter guidance accounted for uncertainty over the ramp’s pace and throughput. For the North Field East and North Field South projects, Johnson expected any delays to first gas or first cargo to be measured in “months, not a full year” and did not expect them to materially affect the company’s free cash flow over the next couple of years.

O’Brien said ConocoPhillips had completed its $5 billion disposition program ahead of schedule, including $1.7 billion of non-core Lower 48 sales in July. He said two LNG offtake agreements, in Indonesia and on the U.S. Gulf Coast, brought total offtake to 12 million tons per annum. The commercial strategy, he said, is to move natural gas into international markets while retaining control across the value chain.

On capital spending, O’Brien told an analyst that he expected spending to decline, particularly once Willow begins production in early 2029. He said the company would continue investing for modest growth in its Lower 48 and other portfolio assets. CEO Ryan Lance said Willow remained on track and that the company expected cost and capital reductions before startup.

Lance also announced that he would retire as CEO effective September 1 and become executive chairman, with O’Brien taking over as president and CEO. O’Brien said the company’s strategic priorities and capital-allocation framework would remain unchanged.

Guidance

ConocoPhillips previously raised its 2026 capital-spending guidance to $12.0 billion–$12.5 billion from about $12 billion; O’Brien said on the second-quarter call that full-year guidance was unchanged. For the third quarter, he guided to production of 2,290,000 to 2,320,000 barrels of oil equivalent per day. The company’s second-quarter guidance midpoint had been 2.2 million barrels of oil equivalent per day.