Is ConocoPhillips a Good Long-term Investment?

ConocoPhillips (NYSE:COPoperates as an integrated oil company focused on exploring, producing, transporting, and marketing crude oil, natural gas, and natural gas liquids, with key operations in North America, Europe, Asia, and Australia. 

One of the key drivers of the company’s development is technology advancements. Investments in superior drilling improve production effectiveness and lower company expenses, and are crucial to staying competitive.

As an integrated oil and gas company that is involved in the exploration, development, and production of crude oil, the performance of this company can be largely pegged on the prevailing oil prices but the energy company has some aces up its sleeve to grow.

What’s Driving Growth at ConocoPhillips?

ConocoPhillips is growing through promising acquisitions that boost its asset portfolio and production capabilities. In January 2021, management finalized the deal with Concho Resources for $9.7 billion in an all-stock transaction. This acquisition increased reserves and overall production capacity significantly for the company, especially in the Permian Basin, one of the premier crude oil-producing areas globally.

In the latter part of 2021, ConocoPhillips acquired Shell’s interest in the Permian Basin, thus expanding its capacity further and available resources for the long term.

Earlier in 2017, the company divested some of its Canadian oil sands resources to Cenovus Energy, keeping a 50% interest in Surmont. This transaction helped to balance the company’s portfolio, providing greater returns in other areas while still preserving an extensive business in the Canadian oil sands.

These strategic moves have helped the company to increase production capabilities in oil regions such as the Permian Basin, which also hosts numerous shale resources.

Moreover, ConocoPhillips and Marathon Oil Corporation (NYSE:MRO) have announced an agreement whereby ConocoPhillips would acquire Marathon Oil in an all-stock transaction valued at $22.5 billion, including $5.4 billion of net debt.

ConocoPhillips chairman and CEO Ryan Lance expects that the acquisition will strengthen its portfolio with even higher quality assets and forecasts strong synergies that will positively impact earnings, cash flows, and per share distributions.

As financial performance improves, ConocoPhillips is better placed to challenge its rivals. Indeed, via these acquisitions over the years, ConocoPhillips has sunk its feet well in the global energy market and now sits with a diverse portfolio of operations that should sustain long-term profitability.

Share Buybacks + Dividends Rewarding Shareholders

In the first quarter of 2024, ConocoPhillips reported revenues of $14.48 billion, down from $15.52 billion in the same period in 2023. It delivered total production of 1,902 thousand barrels of oil equivalent per day (MBOED) compared to 1,859 MBOED in the year-ago period.

Earnings came in at a reasonable $2.6 billion, or $2.15 per share, compared with first-quarter 2023 earnings of $2.9 billion, or $2.38 per share while adjusted earnings were $2.4 billion, or $2.03 per share, compared with first-quarter 2023 adjusted earnings of $2.9 billion, or $2.38 per share.

The bottom line was affected primarily by the impacts of lower oil prices, higher costs, and higher depreciation, depletion, and amortization.

Cash from operating activities was $5.0 billion, while the company funded $2.9 billion of capital expenditures and investments, repurchased $1.3 billion of shares, and paid $900 million in ordinary dividends and VROC and retired debt of $0.5 billion at maturity. Notably, dividend payouts have increased at a 22.3% CAGR over the past five years.

Although the company suffered from some weakness, rising oil prices are forecast by analysts and may well be a boon to the bottom line in coming quarters.

JP Morgan expects WTI crude oil prices to surge to as high as $100 per barrel this year because of diminished incentives for producers to boost production.

On the other hand, OPEC remains optimistic, maintaining its 2024 forecast for strong global oil demand growth. OPEC expects world oil demand to increase by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025.

Is COP a Good Long-term Investment?

With a 54 year dividend history and an aggressive share buyback program in place, as well as a low price-to-earnings multiple, COP has all the hallmarks of being a good long-term investment.

Management gets top marks for returning value to shareholders as evidenced by the increases in dividends and massive share buyback program.

In spite of the persistent concerns and fluctuations from oil prices, ConocoPhillips’ long-term outlook has all the hallmarks of being bullish, especially if analysts forecasts for heightened oil prices come to fruition. 

ConocoPhillips is currently trading at 12x earnings, so it’s no surprise that of the 18 analysts covering the stock, 12 have rated it as a Buy.

With that said, short-term some concerns have been raised after so-so earnings that caused 11 analysts to downgrade their earnings estimates for next quarter.

It’s also worth long-term investors keeping an eye on the debt levels that currently sit at $16 billion against $4.9 billion in cash and $1.2 billion in short-term investments.

On a grading scale, ConocoPhillips gets high marks for cash flow health and profitability but falls short on growth, relative value and price momentum at this time.

All in all, it’s likely to be a good energy stock over the long haul, particularly for income-oriented investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.