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ConocoPhillips (NYSE: COP) fourth-quarter earnings report provided a stark contrast to the high-flying results being reported by the oil companies when gasoline prices exceeded $4 by a substantial amount in some markets.
For the quarter, ConocoPhillips reported a loss of $31.8 billion. resulting from the write down of certain assets, including goodwill put on the books after several recent acquisitions.
Goodwill writedowns can be significant because they cannot be put back on the books even if the asset appreciates in value. For ConocoPhillips, this is not likely to be a problem due to its high liquidity and net worth.
ConocoPhillips was the first of the big oil companies to report for the fourth quarter. It is likely that the others will report similar results, as all are affected by the drop in oil prices from more than $147 per barrel early in the fourth quarter to below $45 at the end of December.
Immediate market reaction to the ConocoPhillips report was positive, COP closed Wednesday at just over $50 per share. Though shares fell on Thursday, closing at $47.16, they are moving back up again Friday morning to $48.09. COP reached a 52-week of nearly $96 per share in early June, and fell to a low of $41.27 in mid-November.
The initial positive reaction to the release came from the company's reporting that earnings adjusted for the writedowns and non-recurring costs exceeded analysts' forecast by 6 cents per share. Investors were also buoyed by the company's actions to reduce its workforce and to defer significant capital expenditures.
Also bringing some cheer to investors was the reaffirming of the company's credit rating by Moody's Investor Services. Moody's noted that the writedown will have no impact on cash flow or liquidity.
The company has a current ratio of 0.91 and interest coverage of 39.3. Long-term debt is less than 25% of equity.
While the glory days for big oil may be over for now, there is little doubt that they will return as the economy recovers.
Unfortunately, that is not likely to occur until sometime in 2010 or 2011. In the meantime, the company will focus on maintaining and upgrading its refineries, and will limit acquisitions to strategic opportunities that might arise, particularly as less well-capitalized companies in the industry struggle to remain independent.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates COP a B or Buy.
Jamie Dlugosch is a contributor to OptionsZone.com.
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Reader Comments (Page 1 of 1)
3-17-2009 @ 9:35AM
Ryan said...
Fourth quater earning report for ConocoPhillips says that they have $31.8 billion. The company has a current ratio of 0.91 and interest coverage of 39.3. Long-term debt is less than 25% of equity.
While the glory days for big oil may be over for now, there is little doubt that they will return as the economy recovers. Unfortunately, that is not likely to occur until sometime in 2010 or 2011.