ConocoPhillips (NYSE:COP) is among the world’s largest pure-play upstream oil companies, with a market capitalization of more than $100 billion. The company recently made a final investment decision for invest in the Willow projecta multi-billion dollar project, which will ultimately produce 600 million barrels of oil.
As we’ll see throughout this article, ConocoPhillips has strong growth prospects that make it a valuable investment.
ConocoPhillips 3Q 2023 Highlights
The company had a good quarter.
It managed to increase its dividends by 14% and now has a dividend yield of almost 4% as a basis for shareholder returns. It also completed the purchase of the remaining 50% stake in the Surmont oil sands for $3 billion and signed a 15-year regasification agreement at the Dutch Gate LNG terminal.
These projects show that the company is taking advantage of its position in the market and cash flow to grow its business.
Financially, the company continued to invest heavily in its business, with $5.5 billion in CFO and $2.9 billion in FCF. The company continued to pay strong dividends and also repurchased $1.3 billion worth of stock during the quarter. This represents a double-digit annual shareholder return.
The company continued to streamline its operations and integrate several significant acquisitions, while protecting its balance sheet and continuing to invest in its operations.
ConocoPhillips Cash Flow
The company is focused on spending its cash flow while protecting its balance sheet.
During the most recent quarter, the company’s net cash decreased by $0.1 billion, taking into account new debt. This is despite annualized investments of $10 billion in its business and annualized returns of more than $10 billion for the company’s shareholders. These two figures together show that the company has an annual capital return capacity in excess of $20 billion.
The quarter was also tougher for natural gas prices, although oil prices remained quite high. It’s worth pointing out here that ConocoPhillips is not the cheapest oil company in the world. The company has strong cash flow, but there are many other crude oil companies offering higher cash yields.
Much of what you get when investing in the company is reliable management committed to reasonable growth as well as solid assets in reliable jurisdictions.
The company aims to finish the year strong.
For the full year, the company is targeting average production of 1.82 million barrels/day, although it expects strong production for the end of the year at 1.88 million barrels/day. day. Adjusted operating costs are expected to be $8.6 billion and capital expenditures are expected to be $11 billion.
The company has benefited much more from Covid-19-related price reductions for its acquisitions than other companies in the sector, so integration and synergies will continue. We hope that this will be increasingly reflected in the company’s results in the coming years.
The biggest risk to our thesis concerns crude oil prices. ConocoPhillips is profitable, but oil prices are a complex industry that has been negatively affected by increased production. At the same time, long-term demand remains questionable. This could harm long-term shareholder returns and the ability to continue to grow returns.
The second risk is ConocoPhillips’ lack of adaptation to climate change. The company continues to buy assets, particularly the most polluting ones such as the Canadian tar sands. This leaves the company vulnerable to future regulations that could harm its ability to continue operating at the same profit margins. This deserves special attention.
ConocoPhillips has an impressive portfolio of assets. The company has grown significantly with a number of mid-sized acquisitions in recent years, and production is now approaching 2 million barrels/day at the end of the year. At the same time, the company has maintained its efficient operations and commitment to shareholder returns.
However, the company is not the cheapest company on the market. The market recognizes a great management team and track record, and especially in times of uncertainty in a difficult industry, it is willing to pay a premium for it. Fortunately, lower prices always mean a lower share price, and with the company down almost 10% from its peak, now is a great time to invest.
We recommend taking advantage of current weakness and especially potential future weakness if prices fall further to build an investment in ConocoPhillips.