ConocoPhillips: The Right Steps Will Lead to Better TimesCOP) might be able to do better in the long run as the company is prioritizing on preserving value and seems focused on deferring the key development programs in present market conditions. In addition, ConocoPhillips forecasts to expand its activities as prices recover and it is currently continuing its efficiency improvement, cost-optimization and pilot programs while sustaining flexibility and capacity to adjust.
Let’s take a look at the moves adopted by ConocoPhillips to improve its operational profile.
Focusing on key assets
For the lower 48 drilling area of ConocoPhillips, the second quarter of 2015 production had increased by 16 thousand barrels of oil equivalent per day (MBOED) to nearly 556 MBOED compared to the similar period last year.
The Bakken and Eagle Ford jointly produced 242 MBOED in the quarter, an increase of 16 percent over the second quarter of 2014. The crude production at Lower 48 increased 9 percent on year-over-year basis. Further, assessment work is continuing at Tiber, Shenandoah and Gila in the Gulf of Mexico.
ConocoPhillips is focused on expanding its production at Eagle Ford and Bakken shale, while minimizing its non-core expenditures to sustain profitability amid weaker global demand and commodity pricing environment.
The oil and gas company is keen on expanding its core oil and gas productions at the existing wells in Baken shale and Eagle Ford shale while maintaining an industry-leading cost position with minimal drilling and exploration expenditures and recording timely cash flows with the sale of non-core operations.
Conoco is also exploring potential unconventional resources with advanced technology such as stimulated rock volume (SRV) that drives notable recovery and production. This major technology works on cored and logged fracture-stimulated reservoir with significant results challenging the common industry interpretations and assumptions.
According to me, investors can go long on ConocoPhillips shares due to its healthy profit margin of 6.70%. However, the company seems overvalued with significant trailing P/E and forward P/E ratios of 22.14 and 41.91, respectively, as compared to the industry’s average P/E of 10.02. Further, ConocoPhillips needs to streamline its balance sheet that’s burdened with debt. But, given its asset optimization moves, it should be able to strengthen its balance sheet going forward and turn out to be a smart investment.
Published on Oct 14, 2015By Yaggyaseni Mittra