COP: Financial Analysis through March 2008 (Update)

The preliminary financial statements for the March 2008 quarter issued by integrated oil and gas behemoth ConocoPhillips (COP) included scads of performance data but no Balance Sheet. When we analyzed these initial results, we assumed that the Balance Sheet did not change between 31 December 2007 and 31 March 2008.

An updated Balance Sheet, and much other useful information, became available about a week later when Conoco submitted a formal 10-Q report to the SEC.

We have updated our analysis to incorporate the latest data. The GCFR gauge scores did not change from the initial analysis, with the exception of one round-off anomaly, as can be seen below:

• Cash Management: 10 of 25 (unchanged)
• Growth: 14 of 25 (unchanged)
• Profitability: 10 of 25 (unchanged)
• Value: 1 of 25 (unchanged)

• Overall: 27 of 100 (down from 28)

The data in the 10-Q didn't change our examination of Conoco's first-quarter Income Statement, which was included here.

The updated Balance Sheet did change the values for some of the Cash Management metrics. The latest figures are listed below:

	March 2008	3 mos. ago	12 mos. ago
Current Ratio	0.9	0.9	0.9
LTD/Equity	23.6%	22.8%	25.9%
Debt/CFO	0.9 yrs	0.9 yrs	1.0 yrs
Inventory/CGS	15.9 days	12.8 days	16.6 days
Finished Goods/Inventory	N/A	N/A	N/A
Days of Sales Outstanding (DSO)	28.2 days	29.7 days	27.3 days
Working Capital/Market Capitalization	-1.8%	-1.3%	-1.7%
Cash Conversion Cycle Time	-2.5 days	-2.1 days	-1.7 days

It's tempting to assume that oil companies are swimming in cash, given the record high prices for crude oil and natural gas, and, indeed some are doing very well. However, in earlier analyses of BP, plc., and ConocoPhillips, we've observed that earnings have been depressed by lower refining margins. For example, in the March 2008 quarter, Net Income attributable to Conoco's Refining and Marketing business was less than one half its value in the March 2007 quarter.

This may seem odd when gasoline is $4 per gallon at the pump in the U.S., but the price of crude oil has increased more than the retail price of gasoline. An article by Jad Mouawad in the New York Times describes the situation with great clarity. Separately, ConocoPhillips CEO James Mulva, at the company's annual meeting, recently commented on the negative effects high oil prices are having on the oil industry.