Is Management Bullish on The Future of ConocoPhillips (COP) and HollyFrontier Corp (HFC)

Page 1 of 2

Recently, the Summit Ski Conference was conducted, where different energy companies shared their future prospects with investors. The conference was certainly an eye opener and gave a clear view of whether managements are bullish on the future of their companies or not. I have pulled out two integrated oil & gas players that presented their cases in the conference. Let’s see whether the managements are bullish or not.

ConocoPhillips (NYSE:COP)

ConocoPhillips (COP) Selling Cedar Creek Assets to Denbury (DNR) for $1.05 BillionAfter some 2013 volume confusion, ConocoPhillips is in the penalty box. It is interesting to note that the targets are modest and attainable. However, the market seems to doubt the company’s ability to reach there, given that it has 2Q/3Q maintenance and weak Canadian differences to work through. The management believes that the volumes will bounce back in 4Q. Following are some of the key takeaways:

–  2014 is a strong volume year given project startups. The company is confident in 1.8 mbd (million barrels per day) by 2016 with higher margins. This is based on sanctioned projects and shale.

–  For simplicity, it is worth noting a 6%-10% cash flow growth from ‘13 to ’17 will get the company cash flow of $18-20 billion, which is above the Street estimates.

–  Most of the company’s 22 million shale acres is held by production (HBP). So there is limited need to destroy capital by chasing growth.

–  Shale e.g. 7,000 locations in Permian, good well results in Niobrara and Canol will provide growth options beyond 2016.

–  As investment slows in Australia Pacific LNG, Europe and Malaysia, a greater share can go into shales, which can extend the growth beyond FY’16. This will also buy time for exploration in pre-salt Angola/lower tertiary/global shale. The company has now booked their own rig for deepwater. The management views Pre-salt Angola/Bangladesh gas seismic as good areas of exploration. Also, more upside awaits the company in Malaysia.

Talking holistically, the management seems to carry a positive sentiment for the company, and 2014 seems to be an exceptional year that will bring both top and bottom-line growth.

HollyFrontier Corp (NYSE:HFC)

Dave Lamp, the Chief Operating officer of the company presented in the conference. Investors took deep interest in the presentation given that it was more like an earnings preview as the company sets the stage to release its 4Q earnings in a fortnight. Following were the key takeaways:

Projects:  Dave highlighted that the company is in the final stages of approval for the Woods Cross Phase 1 project (cost is $225 million and expected annual EBITDA is $125 million). The project is expected to be online in 2014. The Phase 2 project is dependent on securing volume commitments given that the project will rely on black wax supply (the cost of the project is $400-500 million and expected annual EBITDA is >$200 million.

Page 1 of 2