ConocoPhillips' 10-Year Plan Ensures Growth and Shareholder Returns 

Strategist

Allen Good

Revenue segments as reported by the company.

Sales and other operating revenues

Equity in earnings of affiliates

Gain (loss) on dispositions

Other income (loss)

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Purchased commodities

Production and operating expenses

Selling, general and administrative

Exploration expenses

Depreciation, depletion and amortization

Impairments

Taxes other than income taxes

Accretion on discounted liabilities

Interest and debt expense

Foreign currency transactions (gain) loss

Other expenses

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Differentiating itself from peers big and small, ConocoPhillips has laid out a 10-year plan for restrained investment, steady growth, improving returns, and, importantly, returning cash to shareholders. Its strategy makes Conoco a compelling option in the energy sector, given its commitment to capital restraint and clear policy on return of cash to shareholders. Its low-cost portfolio gives it high return investment options to grow in a rising price environment while its strong financial position keeps the dividend safe in a downcycle.

Central to its plan is a commitment to maintain capital spending at $11 billion on average annually while returning 30% of operating cash flow to shareholders per year through a three-tier capital return program consisting of buybacks, an ordinary annual dividend, and a variable component. Through high-grading and cost improvements, the company has reduced the oil price necessary to earn a 10% return on produced resource in its plan to under $40/barrel.

Its growth plan rests largely on its unconventional assets, specifically its Permian position, which became the company’s largest position with the acquisition of Concho Resources and later grew with the purchase of Shell’s Permian shale assets. It has since steadily improved its operational performance. Permian resources constitute the bulk of the planned produced resources in the 10-year plan, with production plateauing at around 1.2 mmboe/d by the end of the decade. 

While the company holds acreage in the Bakken and Eagle Ford, production will only be held flat during the next decade. Outside of the U.S. unconventional portfolio, volumes will steadily grow during the next decade with Alaska and Canada offsetting declines internationally. Growth in Canada will come from the Montney, where Conoco plans to leverage its unconventional experience. New volumes in Alaska will come from leveraging existing infrastructure to grow around legacy assets and later the recently approved Willow project. LNG volume growth will come from participation in two Qatar expansion projects while also sourcing volumes from Port Arthur LNG in the U.S.

Business Strategy & Outlook

We think ConocoPhillips has sufficiently improved its portfolio through cost reductions and divestitures, which combined with the addition of low-cost unconventional production growth warrants a narrow moat rating, as we now expect the company to deliver excess returns on capital at our midcycle oil price assumption of $60/barrel.

In the last few years, ConocoPhillips has reshaped its portfolio by selling higher-cost, lower-return assets including natural gas production in the U.S. and Canada and bitumen production in Canada. Meanwhile, it acquired high-quality Permian acreage with the purchase of Concho Resources and additional acreage in the Delaware basin in the Shell asset acquisition. In total, production has remained flat since 2014, but divested volumes were largely natural gas, leaving higher-margin crude oil production at 53% of the portfolio compared with 39% previously.

Meanwhile, the company has reduced its per-barrel operating costs nearly 30% from 2013 levels. Reductions were most pronounced in its conventional assets in Europe and Asia-Pacific/Middle East regions, where costs are down over 40%. These reductions are a critical driver of the improved portfolio as conventional production constitutes around 600 thousand barrels of oil equivalent per day, or about 40% of current production. Operating costs typically track movements in commodity prices, so based on our expectations for lower oil prices over the cycle as well as the introduction of new technological innovations, we’d expect ConocoPhillips to hold on to the cost improvements during the next five years. 

ConocoPhillips’ unconventional portfolio includes positions in the Eagle Ford, Permian, and Bakken that produced about 1.0 mmboe/d in 2022, or about one third of total production, an holds about 12,000 remaining well locations. Production will continue to increase as investment is primarily directed to Lower 48 development including assets acquired from Concho and Shell in recent years. 

In the Permian, it holds 659,000 net acres in the Delaware Basin and another 251,000 in the Midland Basin. The Permian will drive the company's volume growth with production rising to a plateau level of 1.2 mmboe/d by the end of the decade from a little over 700 mboe/d in 2022

Its Eagle Ford position, acquired at a low cost well before the shale boom, totals 199,000, essentially all in the higher-return oil or liquids window. In the Bakken, ConocoPhillips holds 560,000 acres. Volumes are unlikely to grow too much beyond current levels of about 315 mboe/d, but improvements in drilling times and other advancements means those levels can be preserved with half the number of rigs needed in 2016. Although the Permian tends to garner most of the headlines, ConocoPhillips’ Eagle Ford-dominated portfolio holds break-evens for new shale wells at $40/barrel and below. 

Rounding out ConocoPhillips’ portfolio are the liquefied natural gas assets, which produce about 220 mboe/d from projects in Qatar and Australia. While its Qatar assets rank as some of the best in the world, its Australia assets are more of a mixed bag. Like other LNG projects in Australia that were developed over the past decade, ConocoPhillips’ APLNG facility struggled with cost inflation that ultimately resulted in impairment charges when oil prices fell. However, with startup in 2016, the large capital requirements are behind it while the project benefits from relatively lower operating costs and proximity to Asian demand markets as well as a large resource base capable of producing at plateau levels for decades. It acquired another 10% of APLNG in early 2022 and is set to acquire another 2.49% interest.

LNG low-cost volume growth will come from awarded interests in Qatar's North Field East and North Field South expansion projects which once complete near the end of the decade should bring Conoco's LNG production close to 300 mboed. 

In culmination, we expect ConocoPhillips to deliver midcycle returns on invested capital of 10.4%, above its 8.4% estimated cost of capital and in line with other narrow-moat E&Ps we cover.

We have incorporated environmental, social, and governance risk into our moat evaluation, but most fall outside the 10-year narrow moat window or risk is not material or probable enough to cause material value destruction in the next 10 years. A carbon tax is likely to be implemented and will increase the price of end products to consumers, which will likely erode demand, though the impact on hydrocarbon demand remains more than a decade away. 

ConocoPhillips’ reported greenhouse gas intensity of 27 kg CO2e/boe (2021) is relatively high for its peer group due to its oil sands operations. However, it is investing to improve its emissions intensity and reduce methane leakage and flaring. Management aims to reduce emissions intensity by 50%-60% by 2030 compared with 2016 levels (previously 40%-50%) on both gross operated and net equity basis and set a target for zero routine flaring by 2025. Additionally, ConocoPhillips set a target in 2020 to have net zero carbon emissions by 2050. However, these targets only concern Scope 1 and 2 emissions, while 90% of the full lifecycle of emissions from oil and gas occur during combustion (Scope 3), which lies outside the company’s influence. 

Unlike peers, ConocoPhillips has shown little appetite for investing in low-carbon solutions or renewable energy generation.

Narrow

Economic Moat

ConocoPhillips

ConocoPhillips engages in the exploration, production, transportation and marketing of crude oil, bitumen, natural gas, natural gas liquids, and liquefied natural gas on a worldwide basis. It operates through the following geographical segments: Alaska, Lower 48, Canada, Europe, Middle East and North Africa, Asia Pacific, and Other International. The Alaska segment primarily explores for, produces, transports, and markets crude oil, natural gas, and natural gas liquids. The Lower 48 segment consists of operations in the U.S. and the Gulf of Mexico. The Canada segment consists of oil sands development in the Athabasca Region of northeastern Alberta and a liquids-rich unconventional play in western Canada. The Europe, Middle East and North Africa segment consists of operations and exploration activities in Norway, the United Kingdom and Libya. The Asia Pacific segment has explorations and product operations in China, Indonesia, Malaysia, and Australia. The Other International segment handles exploration activities in Columbia and Argentina. The company was founded in 1875 and is headquartered in Houston, TX.

Earnings data Q3 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Chevron

Pioneer Natural Resources

Exxon Mobil

A potential U.S. recession and tough comparisons to a stellar 2022 are weighing on the prospects of energy stocks delivering an encore to last year's stunning run, despite valuations that are seen as still comparatively cheap.

Wall Street Week Ahead Recession fears pose challenge to energy shares after stellar year

Enterprise Products Partners

PBF Energy

Favorable business environment is likely to have aided earnings for ConocoPhillips (COP), Enterprise Products Partners (EPD) and PBF Energy (PBF) in Q4.

3 Energy Stocks Poised to Outshine Earnings Estimates in Q4

Epsilon Energy Ltd

JinkoSolar Holding

NuScale Power Corp

Valero Energy

Woodside Energy Group Ltd

Most oil and gas companies saw their stocks skyrocket in recent months. And while some have cooled off, the uncertainty of the geopolitical climate and unstable macroeconomic environment points to another year of healthy upside for energy stocks.

7 Energy Stocks That Will Be Big Winners in 2023

ConocoPhillips (COP) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

ConocoPhillips (COP) Earnings Expected to Grow: What to Know Ahead of Next Week's Release

Devon Energy

Diamondback Energy

Halliburton

Kinder Morgan

Occidental Petroleum

Energy prices remain volatile but have been trending upwards so far in 2023. The price of crude oil is currently hovering just above $80 a barrel.

7 Energy Stocks to Buy as a New Bull Market Emerges

EOG Resources

Holly Energy Partners

Phillips 66

The energy sector took a breather this month after its blazing performance in 2022, but it's making a comeback, with stocks including ConocoPhillips (NYSE: COP), EOG Resources, Inc. (NYSE: EOG), HF Sinclair Corporation (NYSE: DINO), and Phillips 66 (NYSE: PSX) boasting strong price action.

Energy Surge: Four Oil-And-Gas Stocks Setting Up In Bullish Bases

HOUSTON--( BUSINESS WIRE )--ConocoPhillips (NYSE: COP) will host its 2023 Analyst & Investor Meeting on Wednesday, April 12 beginning at 8:30 a.m. Eastern time in New York City. The meeting will feature presentations by ConocoPhillips executives, including Chairman and Chief Executive Officer Ryan Lance.

ConocoPhillips to Hold Analyst & Investor Meeting on April 12

We believe that ConocoPhillips stock (NYSE: COP) is currently better valued than EOG Resources stock (NYSE: EOG).

This Stock Appears To Be A Better Bet Than EOG Resources

Chesapeake Energy

Shell PLC

Schlumberger

TotalEnergies SE

United States Oil Fund LP

Whiting Petroleum

Oil and gas stocks can produce significant capital gains from share price appreciation and attractive dividend income during periods of high oil and gas prices.

Are Oil and Gas Stocks a Smart Investment?

Energy Select Sector SPDR Fund

Better-than-expected inflation data, and optimism about China, sent oil stocks higher Thursday. The S&P large-cap energy sector was the biggest gainer.

Will Oil Stocks Once Again Lead The Market As Inflation Eases?

ConocoPhillips, which abandoned Venezuela after its assets were nationalized in 2007, is now open to a deal to sell the country's oil in the U.S. as a way to recover the close to $10 billion it is owed by Venezuela, according to people familiar with discussions between the company and Venezuela representatives.

ConocoPhillips open to deal to sell Venezuelan oil in U.S. to recoup seized assets

Bank of America

D.R. Horton

JPMorgan Chase & Co

Lennar

Ovintiv

American Express

Macerich

Simon Property Group

Warner Bros Discovery Inc

As we start the year 2023, we are reminded of the profound poetry from the band, Echosmith, in the song, “Cool Kids.” It can teach us about what it takes to succeed in long-duration common stock investing currently.

Not the Cool Kids

ConocoPhillips's very near-term prospects are not going to be strong. That much is clear. But here's how investors should think about ConocoPhillips' medium-term prospects.

ConocoPhillips: Ready To Go Higher, Here's Why

Canadian Natural Resources

Hess

Suncor Energy

The farther 2022 gets in the rearview mirror for most investors the better, as it was the worst year for stocks since the 2008 to 2009 period.

Goldman Sachs Loves 7 Large Cap Dividend Energy Stocks for Big 2023 Total Return

AbbVie

Abbott Labs

Accenture Plc

Agree Realty

American Financial Group

American Financial Group Inc 6 1/4 % Debentures 2014-30.9.54 Subord

Air Lease

Alamo Group

Alerus Financial Corp

Amphenol

Algonquin Power & Utilities

Alexandria Real Estate Equities

Franklin Resources

Camden National

Community Bank System

City Hld

Cincinnati Financial

Camden Property

CareTrust REIT

CubeSmart

Dollar General

Quest Diagnostics

Digital Realty Trust

Ecolab

A weekly summary of dividend activity for Dividend Champions, Contenders, and Challengers. Companies which changed their dividends.

Dividend Champion, Contender, And Challenger Highlights: Week Of January 8

ConocoPhillips has evolved into a passive income powerhouse.

Buying This Dirt-Cheap High-Yield Dividend Stock Could Be a Genius Move in 2023

Throwing darts at a board of energy stocks was an effective strategy last year, but more careful energy stock selection will be in order in 2023.

3 Energy Stock Winners With More in the Tank

ConocoPhillips (COP) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Will ConocoPhillips (COP) Beat Estimates Again in Its Next Earnings Report?

Apple

Automatic Data Processing

Aflac

Baxter

Becton, Dickinson and Co.

Carrier Global

Caterpillar

Colgate-Palmolive

Clorox

Dominion Energy

Deere & Company

Emerson Electric

General Electric

General Mills

Genuine Parts

This real-money portfolio wrapped up its eighth year with its best income-growing showing ever. Thanks to a dividend raise and several special payouts, ConocoPhillips was one of the DG50's star performers.

Dividend Growth 50: Income In Year 8 Was Truly Great

News for ConocoPhillips Stock (COP)