ConocoPhillips Continued to Cash In During Q2

ConocoPhillips (NYSE: COP) continues to benefit from its strategic focus on growing cash flow instead of aiming to increase production. The oil company's differentiated business model enabled it to produce another gusher of cash during the second quarter even though oil prices remained volatile. That gave it even more money to buy back its stock.

Drilling down into the results

Metric Q2 2019 Guidance or Expectations Difference
Production 1.29 million BOE/D 1.26 million BOE/D (at the midpoint) 2.4%
Adjusted earnings per share $1.01 $1.03 -2.9%

Data source: ConocoPhillips. BOE/D=barrels of oil equivalent per day.

ConocoPhillips' production came in above the high end of its 1.24 million to 1.28 million BOE/D guidance range. That's 4% higher than the prior-year period and a 6% increase on a debt-adjusted share basis, which accounts for changes in its outstanding shares and debt level.

The main driver of the company's growth was its "big three" shale plays (Eagle Ford, Bakken, and Permian Basin), where production grew 26% year over year. It also benefited from development programs and major projects in Alaska, Europe, and Asia Pacific, which helped offset the impact of planned seasonal maintenance during the quarter.

ConocoPhillips' adjusted earnings came in a bit below analysts' expectations and fell short of the year-ago total of $1.09 per share due to lower oil prices. Cash from operations, however, came in at a healthy $3.4 billion. That was more than enough to fund its capital expenses ($1.7 billion), dividend ($300 million), and share repurchase program ($1.2 billion). As a result, the company's cash position increased by $200 million to $6.9 billion.

A row of oil pumps with cash in the background.

Image source: Getty Images.

A look at what's ahead

The burgeoning cash position led the company to accelerate its share repurchase program for 2019. It now expects to buy back $3.5 billion in stock, up from its initial expectation of $3 billion in shares this year. The company also increased its capital spending budget from $6.1 billion to $6.3 billion. This increase will enable it to complete more exploration and appraisal drilling in Alaska and add another drilling rig to the Eagle Ford. And it expects to spend about $300 million to purchase more drillable land in the lower 48 states this year.

At that pace, ConocoPhillips expects to produce between 1.31 million and 1.34 million BOE/D this year. That's a slightly narrower range than its initial view that output would be 1.3 million to 1.35 million BOE/D.

It's worth noting, however, that the company's guidance does not include the planned sale of its U.K. business. ConocoPhillips agreed to sell these operations for $2.675 billion during the quarter and anticipates that the deal will close in the second half of 2019. It planned to invest about $200 million of capital into those assets this year, which it expected would produce about 70,000 BOE/D. The company intends on updating its guidance after completing that sale.

On track for another good year

ConocoPhillips continues to generate more cash than it needs. That's giving it the flexibility to increase spending as well as speed up the pace of its share repurchases.

Meanwhile, the company has even more cash coming in later this year when it closes the sale of its U.K. operations. Because of that, it could potentially return even more money to its shareholders later this year.

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Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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