ConocoPhillips is an international energy corporation with its headquarters located in Houston, Texas. It is the fifth largest private sector energy corporation in the world and is one of the six “supermajor” vertically integrated oil companies. Its fuel stations are known under the Phillips 66, Conoco, and 76 names. It was created through the merger of Conoco Inc. and the Phillips Petroleum Company on August 30, 2002. Headquarters are in Houston, Texas, in the United States, and offices are located worldwide.
Conoco was founded in 1875, as the Continental Oil and Transportation Company, to sell kerosene to pioneers in Utah. In 1929 it was acquired by Marland Oil Company, which had developed extensive oil fields and refineries in Oklahoma and Texas. Marland Oil changed its name to Continental Oil Company and the main office was moved to Ponca City, Oklahoma. After World War II, Conoco discovered oil in Libya and Dubai and acquired a network of service stations in Europe to market its gasoline products. It expanded its exploration and production operations to Indonesia, the Gulf of Mexico, Venezuela, Russia and the North Sea; by 1972, Conoco had diversified into coal, chemicals, plastics, fertilizers and minerals, and held more than $2.3 billion in assets. ConocoPhillips is known for its technological expertise in reservoir management and exploration, 3-D Seismic technology, high-grade petroleum coke upgrading and sulfur removal. Research efforts have resulted in new technologies to force additional oil out of older, nearly depleted wells, as well as innovative synthetic and coal-based energy alternatives to oil. ConocoPhillips is currently exploring how to extract oil from new sources, as well as searching for alternative and sustainable sources of energy.
ConocoPhillips employs approximately 33,800 people worldwide in nearly 40 countries. As of 2006, its 12 U.S. refineries had a combined crude processing capacity of 2,208,000 barrels per day (351,000 m³/d) (BPD) making it the second-largest refiner in the United States. Based on market capitalization and oil and natural gas reserves, ConocoPhillips is the third-largest integrated energy company in the United States.
Worldwide, ConocoPhillips has a combined crude processing capacity of 2,901,000 bbl/d (461,200 m³/d) making it the fifth-largest refiner in the world. It is the sixth-largest non-government-controlled holder of oil and gas reserves. ConocoPhillips is known for its technological expertise in reservoir management and exploration, 3-D Seismic technology, high-grade petroleum coke upgrading and sulfur removal. Headquartered in Houston, Texas, the company has assets of $143 billion. ConocoPhillips stock is listed on the New York Stock Exchange under the symbol “COP.”
The report is focused on the in-depth Financial analysis of ConocoPhillips and Chevron for the years 2019, 2018 and 2017. The parameters focus on the analysis over the reported figures through ratios and benchmarking over the industrial standards of the Oil and Gas Industry. Due diligence over the reported figures and materiality analysis over the reported incomes and expenses, whether considered appropriately by the management is also being considered. The report also throws light to Advance analysis towards valuations and accounting estimations the management have reported to provide assurance to the true and fair values of their fixed assets (Tangibles and Intangibles). The report also evaluates the shareholders equity analysis and the liability recognized by the management of the entity is true and fair as per the relevant standards. Evaluation and Execution steps are documented to prove the accuracy and authenticity of the report.
One of the prominent parts of the report shall be to analyze the overall ratios and financial figures over the reporting period and to evaluate the same by benchmarking it with the industrial standards.
The Profitability ratios shall be analyzed to determine the operating efficiency of the business and comparing the same with the industry benchmarks. Liquidity ratios shall also be analyzed to determine the company’s position towards their working capital and liquidity. Other classes of financial ratios such as the Leverage ratios, the turnover ratios and the Market value ratios shall also be analyzed along with the healthy comparison with the industry.
The top 10 competitors in ConocoPhillips’ competitive set are BP, Exxon Mobil, Shell, Chevron, Total, LUKOIL, Devon Energy, Chesapeake Energy, Valero, EOG Resources. Together they have raised over 53.1B between their estimated 616.8K employees.
Chevron Corporation has made a 2021 organic capital and exploratory spending program of USD14 billion and lowered its longer-term guidance to USD14 to USD16 billion annually through 2025. This capital outlook will continue to prioritize investments that are expected to grow long-term value and deliver higher returns and lower carbon, including over USD300 million in 2021 for investments to advance the energy transition. Evaluating the financial terms, Chevron has focused more on financial return in terms of dividends to its shareholders. Also the company has been successful in taking proactive measures to mitigate the risks of pandemic some of the prominent that have given itself a competitive advantage being prudency in allocating the capital, reduction in cost and administrative expenses and deliverance of higher returns in the longer term CAGR approach.
The management discussion reported the total company Reserves 5262 million barrels and identified crude oil to be the largest provider of the reserves with the total contribution of 2635 million barrels. The management also reported a decline in the overall annual realized price from $53.88 in 2018 to $48.78 in 2019. The decline was highlighted as a result of the overall decline of the macroeconomic parameter which is an external factor. Several important disclosures were given affecting the overall quality of the strategic and financial decision making.
The management identified the severe competitiveness in the exploration and production of oil and gas. Further it emphasized Any material change in the factors and assumptions underlying the estimates of crude oil, bitumen, natural gas and NGL reserves could impair the quantity and value of those reserves. The management expects to continue to incur substantial capital expenditures and operating costs as a result of the compliance with existing and future environmental laws and regulations. It identified existing and future laws, regulations and initiatives relating to global climate change, such as limitations on GHG emissions, impacting the business plans, resulting in significant expenditures, promoting alternative uses of energy or reducing demand for their products. The business may be adversely affected by price controls, government-imposed limitations on production of crude oil, bitumen, natural gas and NGLs, or the unavailability of adequate gathering, processing, compression, transportation, and pipeline facilities and equipment for their production of crude oil, bitumen, natural gas and NGLs.
Analysis of Accounting Treatment – ConocoPhillips
The financial statement preparation of ConocoPhillips complies with GAAP to ensure that the management is practicing the proper accounting procedures in making estimates that affect the reported asset amounts, expenses, revenues and liabilities.
ConocoPhillips identifies revenues from the sale of crude oil, bitumen, natural gas and other items at the point in time a client takes control of these assets. A client’s control of the assets is defined by whether they have obtained the title and physical delivery of the assets occurred, the client accepted the delivery or a right of payment was signed. Payments are done typically within 30 days and are sold at market prices. Revenues from the transactions are combined and reported. In 2019, Sales and other operating revenues dropped mainly due to decreasing oil prices. Due to impairments of equity method investments in the Lower 48 segment in 2019, equity earnings of affiliates decreased. Equity earnings also decreased because of deferred tax adjustments in Asia Pacific and Middle East segments. Due to the sale of two ConocoPhillips subsidiaries in the U.K. in 2019, the gain of dispositions increased. There was also a sale of a ConocoPhillips subsidiary to BP in 2018 that is partly offsetting this increase. Due to an unrealized gain before-tax on CVE common shares in 2019 and the absence of before-tax unrealized loss on those shares in 2018, these increased the other incomes in 2019. ConocoPhillips’ revenues are attributed from its fixed operating segments. Revenues are attributed from the company’s six operating segments. Sale and operating revenue reported in 2019 decrease due to lower realized crude oil, natural gas and NGL prices. The company records revenue of different products from all of its geographic regions and the amount revenue attributed to ConocoPhillips.
Due to lower oil prices in 2019, purchased commodities decreased. On the other hand, Administrative, selling and general expenses increased in 2019 due to higher costs that are associated with the benefits and compensations for key employees and increased facility costs. Oil exploration costs also increased in 2019 which was primarily due to higher leasehold impairment, higher G&A expenses and drilling a dry hole costs mainly in the Lower 48 segment. ConocoPhillips reported before-tax leasehold impairment expense due to the client’s decision not to continue oil explorations in Central Louisiana Austin chalk trend and drilling dry hole expenses related to this in 2019. Additionally, Due to a before-tax impairment related to the sale of Niobrara interests in the Lower 48 segment, impairments increased in 2019. Finally, due to the absence of before-tax expenses for premiums on early debt retirements and lower pension settlement expenses, the other expenses decreased in 2019. Company recognizes revenues and related expenses properly by providing clearly how the revenues and related expenses come from complying GAAP requirements.
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