Is it Advisable to Acquire ConocoPhillips Shares as Oil Prices Remain Under $80 Per Barrel?
Oil prices have been on a wild ride over the past year, bouncing between the $80 mark and the $70s. Recently, WTI, the U.S. benchmark, tapered off after hitting $80 and is currently hovering around mid-$70s.
The ups and downs of oil prices affect a variety of sectors, including oil stocks. This blog post discusses whether now's a good time to invest in shares of ConocoPhillips, a leading exploration and production company, as oil dips below $80 again.
Oil-Fueled Profits
ConocoPhillips, headquartered in Houston, Texas, is one of the world's largest oil and gas companies. In the third quarter of the previous year, its oil, natural gas, and natural gas liquids (NGL) production averaged more than 1.9 million barrels of oil equivalent (BOE) per day. During this period, it sold its oil for an average of $76.77 per BOE, which translates to $54.18 per BOE of total output. These figures enabled ConocoPhillips to generate an impressive $4.7 billion in cash through operations. The company subsequently used this cash to expand its operations, pay dividends, repurchase shares, and maintain a robust balance sheet.1
ConocoPhillips' ability to produce substantial cash flows was evident in its third-quarter earnings. The company managed to generate a total of $14.9 billion in cash from operations throughout the first nine months of the previous year. This was achieved by maintaining an average production of 1.9 million BOE per day, whom it sold for an average of $55.77 per BOE (translating to $78.88 per barrel of oil). The company used the cash generated to cover its capital expenditures and investments, repurchase shares, and pay dividends, proving that it can thrive even when oil prices are below $80.1
ConocoPhillips' impressive earnings stem from its low cost of supply. The company boasts around 20 billion barrels of resources with a cost of supply of $40 per barrel or less, with an average cost of supply of $32 per barrel. As a result, it can generate substantial cash flows when oil prices are in the $70s.1
Streamlining Operations
ConocoPhillips' ability to generate substantial cash flows was further bolstered by its acquisition of Marathon Oil. In May 2021, the company announced its $22.5 billion deal. In a statement, CEO Ryan Lance highlighted the acquisition's potential to strengthen ConocoPhillips' low-cost oil business. Lance noted that the acquisition of over 2 billion barrels of resources, with an estimated average cost of supply below $30 per barrel, would enhance ConocoPhillips' position in the market.1
The deal not only expanded ConocoPhillips' low-cost inventory but was also immediately accretive to its cash flow from operations and free cash flow. Additionally, the company expects to capture over $1 billion in cost and capital synergies in the first full year following the transaction, which occurred in November 2021.1
These efficiencies have allowed ConocoPhillips to enhance its position as a low-cost oil producer. This not only positions the company to generate substantial cash flows even as oil prices dip below $80 but also enables it to pay attractive dividends to its shareholders.1
In conclusion, while oil prices have been on a rollercoaster ride over the past year, ConocoPhillips has demonstrated its resilience and ability to generate substantial cash flows even when oil prices dip below $80. The acquisition of Marathon Oil strengthened ConocoPhillips' position in the market and expanded its low-cost inventory. As a result, the company continues to be an attractive investment opportunity for investors seeking to capitalize on the oil market's ups and downs.
References
[1] (https://en.wikipedia.org/wiki/ConocoPhillips)
In light of ConocoPhillips' impressive cash flow generation, investors may consider using their money to invest in its shares. The company's low cost of supply and strategic acquisitions enable it to thrive even when oil prices dip below $80.
Given ConocoPhillips' robust financial performance and dividend payouts, strategizing about financing further investments in its shares could prove beneficial for investors who are interested in the oil market.