EUR 850.00 For Business Accounts Only

Morningstar | ConocoPhillips Increases Share Repurchase Plans and Hits Debt Targets Early

No-moat ConocoPhillips reported a solid second quarter of 2018, growing adjusted earnings excluding special items to $1.3 billion from $0.2 billion a year ago. The largest contributing factor to the strong performance has been higher price realizations (up 51%), which given Conoco’s pure upstream business mostly dropped right to the bottom line. As a result, operating activities generated $3.2 billion in cash flows, excluding working capital changes, which were used to cover capital expenditures and investments ($2 billion), share repurchases ($0.6 billion), and dividends ($0.3 billion). Additionally, it used $2.1 billion of its cash balance to pay down its debt load to $15 billion, which was targeted for 2019. On this blue-sky backdrop, management improved shareholder distribution plans in the form of share buybacks, increasing the 2018 target by $1 billion to $3 billion (of which $1.9 billion remains to be repurchased) and boosting the total authorization until 2020 from $6 billion to $15 billion. Capital expenditure guidance for 2018 was increased by $500 million to $6 billion for the year as ConocoPhillips revised its price assumption from $50 per barrel of West Texas Intermediate to $65. Additionally, production guidance was bumped up slightly to between 1,225 mboe/d and 1,255 mboe/d for the full year. Total production in the second quarter was 1,211 mboe/d, down 15% year over year. Excluding dispositions, however, underlying production grew 5% as increases in the three unconventional plays in the Lower 48 and other major projects more than offset natural declines. We plan to update our model with second-quarter results and updated guidance but do not expect a material change to our fair value estimate beyond 5%. ConocoPhillips' no-moat rating remains unchanged.