27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
ConocoPhillips (COP) reported its fourth-quarter 2010 earnings of $1.32 per share (excluding non-recurring items), beating the Zacks Consensus Estimate by a penny. The quarter's earnings increased from $1.20 in the year-ago quarter. The improved performance primarily reflects a hike in commodity prices associated with better U.S. refining margins, partially offset by lower production volumes.
Revenues in the reported quarter improved more than 17% year over year to $53.2 billion, comfortably beating the Zacks Consensus Estimate of $44.0 billion.
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Segmental Performance
Exploration and Production (E&P): The segment reported earnings of $1,854 million during the quarter, reflecting an improvement from the year-ago level of $1,708 million.
Daily production from the E&P segment averaged 1.73 million barrels of oil equivalent (MMBOE), down from 1.83 MMBOE in the year-ago quarter. Normal field reduction in North America and Europe as well as asset divestitures led to the decline in production. These were partially offset by improved production in China, Australia and North America.
Average realized price for liquids was $78.76 per barrel, compared with $68.78 in the year-earlier quarter. The price for natural gas was $4.95 per Mcf in the reported quarter versus $4.82 in fourth quarter 2009.
Refining and Marketing: The segment recorded earnings of $207 million compared with a loss of $204 million in the year-ago quarter.
Domestic refining crude oil capacity utilization rate in the quarter averaged 83%, remaining flat on an annualized basis. International capacity utilization rate averaged 61%, up from 58% in the year-earlier quarter.
Midstream: The segment contributed $91 million to net income during the quarter, down approximately 6% year over year.
LUKOIL Investment: ConocoPhillips' loss from this segment came in at $1 million versus earnings of $456 million in the comparable quarter last year.
Chemicals: The segment recorded earnings of $118 million, up substantially from the year-ago quarter's level of $54 million.
Financials
During the quarter, ConocoPhillips generated $6.2 billion in cash from operations. As of December 31, 2010, the company had $10.4 billion cash balance and $23.6 billion in debt, with a debt-to-capitalization ratio of 25%. During the quarter, the company repurchased $2.6 billion of its common stock, paid $0.8 billion in dividends and invested $3.6 billion in capital expenditures.
LUKOIL Stake
Conoco plans to minimize debt by selling various assets including the LUKOIL stake. The company reduced its OAO LUKOIL ownership interest from 20% to approximately 2% at year end.
Outlook
We remain optimistic about ConocoPhillips' ability to generate free cash flow by unlocking capital tied up in non-core assets. Although we are encouraged by the recent discoveries and the company's new exploration efforts, the transition into improvements in the reserves base, finding and development costs, the production growth rate remains a long-term story.
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The divestment of certain non-strategic assets helps the company to apportion capital to higher margin projects such as Canadian oil sands, LNG and unconventional resource plays.
ConocoPhillips' exploration initiatives toward liquids rich plays such as Eagle Ford, Bakken and North Barnett shale plays are gaining momentum.
As the new management team is on board and initiatives of offloading its stake in LUKOIL are on track, it remains to be seen how the company moves toward improving its bottom line.
Conoco's major competitor Chevron Corp. (CVX) is expected to report its fourth quarter on January 28.
Our long-term Neutral recommendation remains unchanged at this stage and the company holds a Zacks #3 Rank (short term ‘Hold' rating).
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Zacks Investment Research
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.