ConocoPhillips: Go Long for Gains

ConocoPhillips (COP) delivered robust operational performance with second quarter of 2016 total production growing 3 percent year-over-year compared to the same period last year. The sequential improvement in earnings was driven by enhanced realizations while year-over-year bottom line growth was negatively affected by poor realizations for the period. Importantly, the company achieved a notable 18 percent year-over-year fall in non-GAAP operational costs.

Getting it right

Moving ahead, ConocoPhillips is keenly focused on generating superior value through the entire financial cycle by following certain key value-delivering principles that include expanding dividends through planned year-over-year real expansion, developing a robust financial position with strategic debt reduction to below $25 billion and achieving solid year-over-year growth with competitive earnings per share evolution focused on delivering attractive year-over-year returns.

In addition, the company is focused on increasing existing dividends while maintaining solid capital to deliver robust production base.
ConocoPhillips targets on minimizing debt with its maturity through accelerated asset sales focused on achieving topmost credit rating. The consolidated shareholder payout is targeted at achieving 20% to 30% of net cash flow from operations while delivering disciplined capital growth.

The impressive operating performance of ConocoPhillips is a result of disciplined capital allocation strategy being executed by the company which is targeted on delivering high-quality production while minimizing non-core expenses to sustain a superior financial position.

Impressive growth

The independent energy company recorded 3 percent year-over-year growth in the second quarter of 2016 production to about 1,546 MBOED compared to 1,500 MBOED of total production during the same period last year and after strategically adjusting for downtime and dispositions. Further, there’s continuing turnaround activities at the company’s key assets with Surmont uniquely achieving pre-fire rates. Going forward, ConocoPhillips is strategically expanding the midpoint of its complete fiscal year 2016 production guidance by about 2% while uniquely minimizing its 2016 capital expenditure to $5.5 billion from $5.7 billion stated earlier depending on key efficiency gains achieved all through the company’s business segments.

ConocoPhillips has delivered impressive cash flow performance during the first half of 2016 with $2.4 billion of 2016 starting cash flows to $4.2 billion of total cash flows and short-term investments by the end of second quarter of 2016 with $39.73/BBL, $39.38/BBL and $2.02/MMBTU of Brent, WTI and Henry Hub price indices respectively. Moreover, the company has recorded $28.7 billion of total second quarter of 2016 debt with 43% of attractive debt-to-capital ratio.

A slight year-over-year improvement in second quarter of 2016 total company production along with superior debt reduction initiatives has strongly positioned ConocoPhillips to deliver sustainable long-term growth while offering attractive shareholder returns.

Conclusion

Overall, the investors are advised to “Hold” their position in ConocoPhillips considering the company’s significant near-term and longer term growth prospects but, currently weaker financial position with notable total debt of $28.68 billion against smaller total cash position of $4.15 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -29.20% is also disappointing and signifies no profit but loss. However, the PEG ratio of 0.42 appears satisfactory and depicts reasonable company growth.
Published on Aug 17, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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