ConocoPhillips Lays Out Plans for Next Decade, Aims $50B FCF

ConocoPhillips COP recently revealed operational and financial plans for the next decade, which will boost production while keeping spending under check. The company is also planning to enhance shareholder returns during this time frame of 2020-2029, while maintaining a strong balance sheet.

Free Cash Flow

The upstream major — which had generated $16.3 billion and $7.3 billion in free cash flow (FCF) in 2017 and 2018, respectively — expects to generate around $50 billion of FCF during the 2020-2029 time period. It assumes WTI Crude price at $50 per barrel during this period. Notably, the company generated $6 billion FCF in the first three quarters of 2019, with WTI Crude price averaging $57.04 per barrel.

Capital Spending & Production

ConocoPhillips intends to keep annual capital spending below $7 billion over the next 10 years. Capital spending was recorded at around $5 billion in the first three quarters of 2019 and totaled about $6.8 billion in 2018. Importantly, the company expects to boost hydrocarbon output by more than 3% per annum over the next decade, aided by unconventional growth. It reported better-than-expected third-quarter 2019 results on the back of higher volumes from the company’s unconventional assets in Eagle Ford, Bakken and Delaware Basin.

Moreover, it has plans to spend almost $4 billion per annum on the shale plays and run around 20 rigs across four major fields. This is expected to ramp up production from the regions from 400,000 barrels a day currently to more than 900,000 barrels by the end of the next decade. Notably, the company has a humongous resource base of around 15 billion barrels of oil equivalent, which has a supply cost of less than $40 per barrel. 

Returns to Shareholders

The news came at a time when upstream companies are under pressure from investors, who are no longer supporting drilling programs and expansions in the absence of strong cash flows. Investors want explorers to reduce costs, improve internal efficiencies, raise share repurchases and increase returns. As such, ConocoPhillips’ target of paying dividends of $20 billion and making $30 billion of share repurchases over the coming decade can cheer investors.

Other Plans

The company intends to maintain a strong balance sheet throughout the next decade. ConocoPhillips expects net debt to be $6 billion by 2019-end, indicating a decline from $24 billion in 2016. At the end of third-quarter 2019, the company had a total long-term debt of nearly $15 billion, representing a debt-to-capitalization ratio of 30%, lower than the industry average of 35.6%.

ConocoPhillips intends to divest 25% of its Alaska properties, as it has a practice of not funding any major project in its entirety.

Price Performance

The company’s shares have lost 8.3% year to date compared with 21.8% decline of the industry it belongs to.

Zacks Rank & Stocks to Consider

Currently, ConocoPhillips has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Phillips 66 PSX, CNX Resources Corporation CNX, and Contango Oil & Gas Company MCF. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Phillips 66’s 2019 earnings per share have witnessed nine upward movements and no downward revision in the past 30 days.

CNX Resources’ 2019 earnings per share have witnessed three upward movements and no downward revision in the past 30 days.

Contango Oil & Gas’ bottom line for the current year is expected to rise around 87% year over year.

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