Fall Is Temporary for This Oil and Gas King: ConocoPhillips (COP)

Page 1 of 2

ConocoPhillips (COP) Selling Cedar Creek Assets to Denbury (DNR) for $1.05 BillionConocoPhillips (NYSE: COP) fell after the company reported a decrease in profits. The stock fell by 5% in the regular trading hours. However, COP started to recover in the after-hours trading. Stock price for COP has shown a solid upward trend over the past four months. The company’s strategy seems to be novel. From seeking a 100% reserve replacement ratio, devoting 75% of its cash flows to capital expenditure and the remaining to shareholders, there is very little that does not appeal to the eye. Growth and dividends appear to be guaranteed.

Low Risk Exploration coupled with Efficiency, and Shrewd Capital Expenditures

It is well known that ConocoPhillips is the largest independent E&P (oil and oil equivalent) company in North America. Without delving into its future strategy, it is easy to infer that long-term sustainability of the company is not under any significant threat. ConocoPhillips has a major chunk of its production and reserves emanating from low risk destinations such as Europe, Canada and US/Lower. These assets account for 58% in reserves and 59% of the production. On the other hand, 21% of the production and reserves are located in Asia Pacific and the Middle East. Aside from Qatar, all the other exploration and production destinations lie Central, South and East Asian States, which are conflict free. The Investor Update for January 2013 sums this up by highlighting that 79% of ConocoPhillips’ proved reserves lie in OECD countries.

From an analytical point of view, the company’s international spread seems to be favorable from a transportation point view. Developed countries are the major consumers of oil and oil equivalents, and the proximity to these markets factors in as a huge positive for ConocoPhillips. Moreover, ConocoPhillips will spend $15 billion in capital expenditure that will lead to a compound annual growth rate of 3-5% over the next four years. In addition, divestment in mature oil fields in Northern Dakota, Nigeria and other spin-offs have led to capital availability of $8-10 billion. Additional capital can be re-allocated into high growth projects in the current year.

Challenges for the Company

Amidst the ongoing wave, activist investors are amassing shares in order to restructure energy companies. This is being done through reconstituting the Board of Directors and getting rid of underperforming assets. There is a feeling that ConocoPhillips may also be a target. However, there are many factors that allay these fears. The separation of downstream Phillips 66, the aforementioned active divestitures and lucrative investments help in dispelling such negative claims.

Moreover, significant concerns have arisen after a 58% drop in the fourth quarter earnings. The fourth quarter profit stood at $1.43 billion (adjusted earnings of $ 0.43 per share) from $3.39 billion (adjusted earnings of $1.55 per share). In addition, full year earnings fell to $8.4 billion in 2012 from $12.4 billion and the cash flow position also seems to be a little constrained. In my opinion, investors should not be overly concerned about these results at this point. As a result of all the smart and diverse investments, profits and earnings should be back on track in very little time.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!