Is ConocoPhillips (COP) Fairly Valued?

The company’s oil sands assets continue to show strong performance, with average production exceeding 100 MBOED for the quarter. The production mix in the Lower 48 and Canada continues to shift from natural gas to liquids and, for the quarter, total liquids production increased by 21% compared to the same period in 2011 and resulted in the liquids percentage of production increasing from 43% to 48%.

The company expects to increase its acreage in deepwater Gulf of Mexico by roughly 375,000 acres to 1.9 million acres as a result of successful participation in two lease sales in the central and western zones.

Price Realization and Cash Generation

Adjusted earnings decreased in comparison to fourth-quarter 2011 primarily because of lower commodity prices. The company’s total realized price fell to $67.45 per BOE, compared to $69.99 per BOE in the same quarter of the previous year. Realized crude oil prices decreased to $103.08 per barrel, compared with $105.92 per barrel, and realized natural gas liquids (NGL) prices fell by 18% to $44.93 per barrel in comparison to $55.06 per barrel for the same quarter of the previous year.

Realized natural gas prices fell to $5.79 per thousand cubic feet (MCF), compared with $5.88 per MCF for the fourth quarter of 2011. For the quarter, cash generated from continuing operations was $3.87 billion and, excluding a working capital increase of $0.37 billion, the company generated $4.24 billion in cash from operations. This was used to fund a $3.6 billion capital program and dividend payments of $0.8 billion. In addition, to $2.1 billion from asset dispositions in 2012, the company has announced asset sales that are expected to close by mid-2013 and generate proceeds of approximately $9.6 billion.

Other Energy Stocks

Refiners, including Phillips 66 and Marathon Petroleum Corp (NYSE:MPC) touched record highs as they beat consensus earnings estimates and have the potential to turn a plentiful supply of cheap U.S. oil into value addition for shareholders. Phillips 66, the largest U.S. independent refiner by revenue, plans to expand its share buyback program by $1 billion and raise its annual dividend. Excluding a refinery write-down, EPS at Phillips 66 was $2.06, which is 37 cents more than the $1.69 consensus estimate. Marathon Petroleum touched its highest price since June 2011 and said in a statement that it will expand its buyback program by $2 billion. Marathon Petroleum, spun off from Marathon Oil Corporation (NYSE:MRO) last year, reported fourth-quarter profit of $755 million, or $2.24 a share, 16 cents more than the $2.08 consensus estimate.

Conclusion

I believe that it will take some more time after the separation of Phillips 66 to properly analyze this company and establish its future prospects. Meanwhile, I think that the current price provides a fair valuation, and I rate the stock a “Hold.”

The article Is This Oil & Gas Major Fairly Valued? originally appeared on Fool.com and is written by Jordo Bivona.

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