ConocoPhillips Can Stage a Turnaround

ConocoPhillips (COP) is strategically diversifying its production profile through a solid diversified asset base having notable scale and scope for delivering impressive growth through multiple sources. The company has a huge inventory of reduced costs of supply prospects with significant positions in major resource trends and somewhat lower execution risk.

ConocoPhillips has uniquely sailed through the industry slowdown by superbly exercising capital flexibility, particularly in Lower 48 unconventionals. In addition, the company has delayed its key projects, implementing superior portfolio optimization processes, lowered prospective deepwater exploration expenditures and slightly enhanced the dividends.

ConocoPhillips is strategically focused on preserving value at the Lower 48 Unconventionals along with maintaining flexibility and capacity to adjust while continuing to optimize its efficiency and optimization initiatives and expects to accelerate these expansion activities as the pricing environment improves.

The natural resources company seems prudent on diversifying its solid asset base which is expected to further minimize the company’s operational risk and maximize profitability by delivering outstanding production figures while smoothly traversing through the current economic downturn.

The key natural resources explorer has successfully minimized the cost of supply at the Eagle Ford basin and being the lowest cost supplier compared to its key competitors with delivering the highest NPV per acre from the average of 7 rigs during 2015.

Outlook

ConocoPhillips announced third quarter ended September 30, 2015 adjusted loss of $466 million or $0.38 of adjusted loss per share compared to adjusted earnings of $1.611 billion or $1.29 of adjusted earnings per share in the third quarter of 2014.

ConocoPhillips recently declared a quarterly dividend of $0.74 per share payable Dec.
1, 2015 to its key stakeholders as of Oct. 19, 2015 and uniquely raised its quarterly dividend in July to approximately $0.74 per share.

Although ConocoPhillips has suffered significant bottom line losses during the quarter still, the company is focused on delivering improved shareholder returns and thus it has maintained the quarter-over-quarter dividend payment record.

ConocoPhillips recorded third quarter production of 1,554 MBOED and in line with its expectations to surpass production guidance for the complete fiscal year 2015. Going forward, ConocoPhillips has also provided the production guidance for the fourth quarter of 2015 and estimates production to be in 1,585 to 1,625 MBOED range. The company expects complete-year 2015 production to be in the range of 1,585 to 1,595 MBOED, leading to an estimated year-over-year expansion of 3 to 4 percent resulting from its continuing operations, without Libya.

The natural resources major is particularly focused on optimizing its cost structure by accelerating operational and capital cost control.

ConocoPhillips is observed to be keenly focused on increasing the high-quality and superior-returns production while controlling the non-core expenditures to maintain healthy balance sheet and successfully pursue future growth opportunities.

What should investors do?

The consensus estimate among 28 polled investment analysts evaluating ConocoPhillips suggests that the company would outperform the market. This consensus rating is maintained since the investment analyst’s sentiments got better on Mar 26, 2014. The earlier consensus estimate suggested investors to hold their position in the company.

A majority of the key investment analysts are now positive about the growth prospects of ConocoPhillips, primarily encouraged by the steadily improving global economic demand and pricing environment for all the key natural resources which is believed to deliver superior profitability for the company over a longer term.

Overall, the investors are advised to “Hold” their position in ConocoPhillips looking at the debt-burdened balance sheet of the company with significant total debt of $24.92 billion against weaker total cash position of $3.81 billion only, restricting the company to continue with its operations profitably. The profit margin of -2.85% is also disappointing and indicates no profit but loss. The PEG ratio of 11.65 signifies expensive company growth.
Published on Feb 3, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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