We reaffirmed our Neutral recommendation on
) on Sep 3, 2013. We appreciate ConocoPhillips' emphasis on
creating shareholder value through operational excellence, strong
project execution and dividend payout. However, the company's
growth and returns picture will likely be hindered by its
productivity decline due to divestitures. ConocoPhillips carries
a Zacks Rank #3 (Hold).
CONOCOPHILLIPS (COP): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
CHINA PETRO&CHM (SNP): Free Stock Analysis
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ConocoPhillips' leading position in both natural gas and heavy
crude oil in North America,as well as legacy position in the
North Sea and growing exposure to lucrative international regions
are expected to replace reserves and sustain production growth
over the long term.
ConocoPhillips' initiatives toward liquids-rich plays are gaining
momentum through the Eagle Ford, Bakken and Permian plays. The
company is also poised to benefit from a pipeline of projects in
the Gulf of Mexico (GoM), Malaysia, the liquefied natural gas
(LNG) project in Australia, the U.K., Norway, and the Canadian
oil sands, apart from the US Lower 48 liquids-rich plays. Oil
sands expansion projects are also on track. In July, Christina
Lake Phase E witnessed first yield and the output is expected to
accelerate over the next six to nine months. These ramped up
activities are expected to aid in meeting its long-term
production growth target.
ConocoPhillips remains on track with its divestment program, with
a total of about $14.1 billion being completed. The company has
generated $1.7 billion in proceeds from asset sales during the
first half of 2013 and expects to raise an additional $9 billion
from the disposition program by the end of 2013. In this regard,
ConocoPhillips is trying to shed part of the Surmont and APLNG
projects this year. This is expected to enable ConocoPhillips to
generate a healthy cash surplus in 2013. The proceeds are also
expected to be utilized for portfolio optimization and increasing
However, with the completion of the spin-off, the company has
shifted its total focus to upstream operations and thus oil and
gas prices play a major role in determining its performance. In
addition, natural decline and downtime in the fields are also
expected to result in weak production. Moreover, the company
remains vulnerable to unstable movements in crude oil and natural
Other Stocks to Consider
While we prefer to remain on the sidelines for ConocoPhillips,
Zacks Ranked #1 (Strong Buy) stocks -
China Petroleum & Chemical Corp.
SM Energy Company
Range Resources Corp.
) are good buying options for the short term.