ConocoPhillips’ ( COP Quick Quote COP - Free Report) shares have gained 52% in the past year compared with the industry’s 33% growth.
The Zacks Rank #3 (Hold) company has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 30 days. COP is expected to see earnings growth of 142% in 2022.
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Let’s delve into the factors behind the stock’s price appreciation.
What’s Favoring the Stock?
The West Texas Intermediate (WTI) crude price, currently trading higher than the $80-per-barrel mark, improved significantly in the past year. Strong oil prices are boons for ConocoPhillips’ operations as it holds a bulk of acres in the three big oil-rich unconventional plays — Eagle Ford shale, Delaware basin and Bakken shale.
In the Eagle Ford shale, ConocoPhillips drilled more than 1,600 wells, which could provide access to huge oil-equivalent potential reserves. Moreover, in the Bakken shale, COP continues to develop and implement innovative methods and technologies to gain further improvements in developing 750 identified undrilled locations. The company’s production outlook seems bright as it has decades of low-cost premium drilling sites in those resources.
For 2022, ConocoPhillips projects its production at 1.74 million barrels of oil equivalent per day (MMBoe/d), suggesting an improvement from 1.6 MMBoe/d reported last year. For the third quarter, ConocoPhillips expects production of 1.70-1.76 MMBoe/d. Higher production will aid the company’s bottom line.
ConocoPhillips has a sound balance sheet, with significantly lower debt exposure than the composite stocks belonging to the industry. Its debt-to-capitalization ratio of 0.25 is lower than the industry average of 0.33. Notably, the company generated cash from operating activities of $13 billion in the first half of 2022, which reflects strong operations.
ConocoPhillips’ focus on returning capital to shareholders is commendable. COP revised higher its expected 2022 return of capital to shareholders. The new guidance is at $15 billion, reflecting an increase from the previously mentioned $10 billion. The incremental returns to stockholders will get distributed through share repurchases and VROC tiers. Notably, COP paid out $1.9 billion in ordinary dividends and VROC, and repurchased $3.7 billion of shares in the first half of this year.
Although the long-term view seems lucrative, ConocoPhillips is exposed to oil price volatility that makes things challenging for the company. Also, increasing expenses are hurting the upstream energy player’s bottom line.
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