Morningstar | ConocoPhillips Reports Higher Earnings and Cash Flow; Increasing Fair Value Estimate. See Updated Analyst Note from 01 May 2019
ConocoPhillips reported a slight increase in first-quarter earnings to $1,148 million from $1,136 million a year ago. Despite lower benchmark oil and natural gas prices, ConocoPhillips' per barrel realizations increased thanks to higher LNG and bitumen prices. Production, excluding Libya, increased to 1,318 mboed from 1,224 mboed last year, or 5% excluding assets acquisitions, thanks to continued growth in the unconventional business and major projects in Alaska, Europe, and Asia-Pacific. Full-year production guidance remains at 1,300-1,350 mboed, although the second quarter will decline from the first quarter due to seasonal turnaround and maintenance. Production from the company’s Big 3 unconventional plays was higher by 30% year over year but slightly down from the fourth quarter. Full-year guidance, however, remains for growth of 19% with activity expected to accelerate in the second half of the year.Operating cash flow was strong, increasing to $2.9 billion excluding working capital from $2.5 billion last year, resulting in free cash flow of $1.3 billion. Keeping with its target of returning at least 30% of operating cash flow annually, it paid $300 million in dividends and repurchased $800 million in shares. Updating our model with the latest results and higher near-term oil prices moves our fair value estimate to $80 from $76. Our narrow moat rating remains intact.
Management used the quarterly results to preview its analyst day in November where it intends to detail a 10-year plan to keep capital spending at $7 billion annually (guidance is for $6.1 billion this year), assuming $50/bbl WTI, that will deliver growth while maintaining its 30% payout target and remaining free cash flow positive at prices as low as $40/bbl WTI. The plan is keeping in line with ConocoPhillips' transition to a value focused E&P able to deliver returns throughout the cycle.
We think this strategy, along with its valuation, makes ConocoPhillips one of the more compelling opportunities in the E&P space.
ConocoPhillips is an exploration and production company engaged in exploring for, producing, transporting and marketing crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids. The company's segments include: Alaska, which operates in Alaska; Lower 48, which operates in the United States and the Gulf of Mexico; Canada, which operates in Alberta and British Columbia; Europe and North Africa, which consists of operations and exploration activities in Norway, the United Kingdom and Libya; Asia Pacific and Middle East, which operates in China, Indonesia, Malaysia, Australia, Qatar, and Timor-Leste; and Other International, which operates in Colombia, Chile and Argentina.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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