ConocoPhillips said on Wednesday its first-quarter results will benefit from higher oil prices and output, while warning of a $600 million profit hit from its recent acquisition of Concho Resources and related commodity price hedges.

ConocoPhillips sees higher Q1 output, warns of profit hit from unwinding hedges- oil and gas 360

Source: Reuters

Higher oil prices and deep cost cuts implemented last year at the peak of a downturn in demand are expected to help U.S. oil and gas companies deliver improved first-quarter profits.

But on the flip side, Conoco’s forecast also signals trouble for it and other companies that had hedged oil output at lower than market prices. Unwinding the hedging contracts will mean hits to earnings for some shale companies, analysts said.

The top independent U.S. oil producer expects average prices to be $43 to $45 per barrel of oil equivalent for the first quarter, much higher than the $33.21 it earned in the last three months of 2020.

It also forecast production of 1.47 million barrels of oil equivalent per day (boepd) to 1.49 million boepd, in the first quarterly result after it closed its nearly $10 billion deal for smaller rival Concho.

Analysts at Royal Bank of Canada said the first-quarter outlook shows Conoco received strong prices for its oil and gas, and exceeded expectations for operating costs and capital outlays.

“The 1Q21 update is better than expected,” analyst Scott Hanold said.

The output forecast included an about 50,000 boepd hit from the cold storm that swept Texas in mid-February. Smaller rival Devon Energy Corp said on Monday the severe winter weather hit its first-quarter output by 8%.

ConocoPhillips said it expects to take $300 million in transaction and restructuring related expenses in the first quarter and another $300 million related to its commodity hedging positions.

The company, which reiterated its annual output forecast and budget, said it had settled all oil and gas hedging positions acquired from Concho as of the end of the quarter.

The expenses and hedges were also expected to hit cash from operations by about $1 billion.

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