ConocoPhillips Continues Rigid Execution (NYSE:COP)

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Conoco Phillips (NYSE: COP) is an American multinational that fell by more than 15% following the drop in oil prices. However, the company is still one of the largest upstream companies with a market capitalization of over $130 billion, well-timed COVID-19 acquisitions and a portfolio of assets that will support future returns.

As we will see from all of this put together, ConocoPhillips has the ability to generate substantial returns for shareholders.

ConocoPhillips Q2 2022 Results

ConocoPhillips achieved reasonable results in Q2 2022 showing its financial strength.

ConocoPhillips Investor Presentation

ConocoPhillips Investor Presentation

The company generated nearly 1.7 million barrels/day in production, with shutdowns completed on schedule. The company continued to strengthen its position in terms of square footage, which tends to allow for longer branch lines and lower costs. Financially, the company is targeting double-digit returns for shareholders, with $15 billion in capital repaid.

The company has secured new stakes in QatarEnergy’s LNG projects. The company is looking to expand its position in the LNG markets. The company generated nearly $6 billion in free cash flow (“FCF”), representing a return of nearly 20% FCF. The company has continued to repurchase shares and dividends and continues to have a strong net cash position.

ConocoPhillips price performance

The company continued to generate strong price performance, demonstrating the strength of its assets.

ConocoPhillips Investor Presentation

ConocoPhillips Investor Presentation

The company has done incredibly well with price realizations in an expensive market. The company delivered strong total Brent % realizations, despite significant gas volumes, and crude realizations in particular performed incredibly well. The company’s natural gas realizations have fallen but are still near the top prices.

The continued strong price performance here shows increased efficiency in company operations and the ability to generate higher profits as a result.

ConocoPhillips Tips

The company’s outlook is for strong and continued returns for shareholders in the future.

ConocoPhillips Investor Presentation

ConocoPhillips Investor Presentation

The company’s advice is aimed at maintaining the strength of its portfolio. The company’s production forecast for fiscal year 2022 is 1.74 million barrels/day, with just a hint below, or 1.73 million barrels/day in Q3. The company’s capital spending forecast for fiscal 2022 is nearly $8 billion, or just under $2 billion per quarter in capital spending.

This is a number the company can comfortably afford given its nearly $8 billion CFO in Q2 2022. We expect the company to continue to generate strong FCF through the end of the year.

Return potential for ConocoPhillips shareholders

ConocoPhillips has the ability to generate substantial returns for shareholders. The company’s outstanding shares have increased following recent acquisitions during COVID-19, however, we still view acquisitions as opportunistic.

ConocoPhillips Investor Presentation

ConocoPhillips Investor Presentation

At $50/barrel of WTI, the company expects to generate $80 billion in FCF, with the majority delivered as shareholder returns. Every $10 WTI can add around $30 billion, showing the substantial strength of the company’s financial positioning. We expect the company to stick to its dividend spending forecast of around $24 billion, which it can afford, offering yields of around 3%.

The rest will be share buybacks. The lower the company’s stock price remains over the next few years, the better. The company’s buyout plan for 2022 is approximately $6 billion, and recent share price weakness will support long-term buyout opportunities. It should be noted that the company’s dividend budget could provide higher returns as the number of shares decreases.

This share buyback program is significant.

Thesis risk

The biggest risk to our thesis is the price of crude. The company is profitable at $60 WTI with the ability to generate around $100 billion in shareholder returns, or an annualized return of around 8% over the next decade. This presents $60 WTI as roughly the minimum midpoint price for the company to match historical market returns. Before that, the company will struggle to perform.

Conclusion

The recent weakness in ConocoPhillips’ share price presents a substantial opportunity, especially for a company looking to invest aggressively and reduce its number of shares outstanding. The company has a 3% dividend yield and the ability to generate a double-digit dividend yield through its continued investments and redemptions.

Overall, the strength of the business makes it a valuable investment. The company is generating massive cash flow and as long as WTI prices remain above $60/barrel, which we expect, we expect the company to generate substantial returns for shareholders. All of this makes the business a valuable investment.

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