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Why Hold Strategy Is Apt for ConocoPhillips Stock Right Now
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Key Takeaways
ConocoPhillips has a diversified, low-cost global asset base that supports production and cash flows.
COP's asset sales and the Marathon Oil acquisition expand Lower 48 inventory and target $1B synergies.
ConocoPhillips faces risks from oil price volatility and rising capital costs at its Willow project in Alaska.
ConocoPhillips (COP - Free Report) is an independent exploration and production company that boasts a diversified asset base spread across 14 countries. The company has shown stable performance over the past six months, with its shares gaining 1.8% compared to a 5.1% growth of the broader Oils-Energy sector. It is primarily involved in the exploration and production of crude oil, natural gas liquids, bitumen and natural gas.
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Let us delve into the strengths and risk factors associated with the COP stock to determine if this is the right time to buy or hold.
Positive Factors Boosting COP’s Performance
High-Quality Assets Supporting Low-Cost Production: ConocoPhillips has a strong footprint in prolific acres in the United States, with numerous untapped drilling locations spread across its asset base. The energy firm’s assets in the U.S. Lower 48 are spread across major shale basins, including the Delaware Basin, Midland Basin, Eagle Ford and Bakken shale, which offer 15 years of low-cost drilling inventory. COP’s overall production is also supported by other assets in the oil sands in Canada, and conventional assets in Asia, Europe and the Middle East, which also support low-cost operations. The company’s high-quality, low-cost portfolio of assets makes it resilient to challenging commodity pricing environments and allows it to generate sustainable cash flows.
Progress on Divestment Program: ConocoPhillips follows a rigorous schedule of reviewing its assets every year, focusing on high-quality, low-cost assets while divesting non-core assets within its portfolio. The company recently sold off its Anadarko Basin assets in a deal worth $1.3 billion. COP is already ahead of its asset sales target for the year. Additionally, the company has completed $3 billion of asset sales of its $5 billion target by 2026. The divestment program enables COP to high-grade its portfolio of assets and accelerate value realization from its non-core assets.
Acquisition Strategy: COP’s acquisition of Marathon Oil in 2024 expands its low-cost resource base, particularly in the U.S. Lower 48, where the company already holds a significant acreage position. The acquisition not only strengthened ConocoPhillips' position as a premier shale operator in the United States by expanding its high-quality inventory in the Lower 48, but also unlocked significant run-rate synergies and improved its production outlook. ConocoPhillips had originally estimated $500 million in annual synergies from the acquisition. However, according to its recent estimates, COP is on track to realize more than $1 billion in run-rate synergies by the end of 2025.
Risk Factors to Consider
Commodity Price Sensitivity: A primary risk factor for ConocoPhillips’ operations is the significant volatility in commodity prices and market conditions. Per the U.S. Energy Information Administration, oil prices are expected remain under pressure over the next year. If oil prices remain low over a longer period, it could limit the company’s earnings growth and hurt its stock value, even though it has a strong portfolio of assets.
Project Inflation: ConocoPhillips’ Willow project in Alaska has reported an updated total project capital of $8.5-$9 billion from the initial estimates of $7-$7.5 billion. The increase was primarily driven by general inflation, modestly higher on general labor and engineering equipment, and localized North Slope and marine cost escalation. Management has acknowledged that these cost overruns were rather disappointing. With the first oil from the Willow project expected in 2029, the project still has a few years to go, with major capital outlays expected. These rising costs could hurt project economics and undermine returns.
Given these factors, investors should consider adopting a hold strategy for the stock at present.
Oceaneering International delivers integrated technology solutions across all stages of the offshore oilfield lifecycle. The company is a leading provider of offshore equipment and technology solutions to the energy industry. OII’s proven ability to deliver innovative, integrated solutions supports ongoing client retention and new business opportunities, ensuring steady revenue growth.
Subsea7 helps build underwater oil and gas fields. It is a leading player in the global offshore energy industry, providing engineering, construction and related services at offshore oil and gas fields. The long-term outlook for energy demand remains positive, and Subsea7’s focus on cost-efficient deepwater projects strengthens the position of its subsea business.
FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, FCEL is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.
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Why Hold Strategy Is Apt for ConocoPhillips Stock Right Now
Key Takeaways
ConocoPhillips (COP - Free Report) is an independent exploration and production company that boasts a diversified asset base spread across 14 countries. The company has shown stable performance over the past six months, with its shares gaining 1.8% compared to a 5.1% growth of the broader Oils-Energy sector. It is primarily involved in the exploration and production of crude oil, natural gas liquids, bitumen and natural gas.
Let us delve into the strengths and risk factors associated with the COP stock to determine if this is the right time to buy or hold.
Positive Factors Boosting COP’s Performance
High-Quality Assets Supporting Low-Cost Production: ConocoPhillips has a strong footprint in prolific acres in the United States, with numerous untapped drilling locations spread across its asset base. The energy firm’s assets in the U.S. Lower 48 are spread across major shale basins, including the Delaware Basin, Midland Basin, Eagle Ford and Bakken shale, which offer 15 years of low-cost drilling inventory. COP’s overall production is also supported by other assets in the oil sands in Canada, and conventional assets in Asia, Europe and the Middle East, which also support low-cost operations. The company’s high-quality, low-cost portfolio of assets makes it resilient to challenging commodity pricing environments and allows it to generate sustainable cash flows.
Progress on Divestment Program: ConocoPhillips follows a rigorous schedule of reviewing its assets every year, focusing on high-quality, low-cost assets while divesting non-core assets within its portfolio. The company recently sold off its Anadarko Basin assets in a deal worth $1.3 billion. COP is already ahead of its asset sales target for the year. Additionally, the company has completed $3 billion of asset sales of its $5 billion target by 2026. The divestment program enables COP to high-grade its portfolio of assets and accelerate value realization from its non-core assets.
Acquisition Strategy: COP’s acquisition of Marathon Oil in 2024 expands its low-cost resource base, particularly in the U.S. Lower 48, where the company already holds a significant acreage position. The acquisition not only strengthened ConocoPhillips' position as a premier shale operator in the United States by expanding its high-quality inventory in the Lower 48, but also unlocked significant run-rate synergies and improved its production outlook. ConocoPhillips had originally estimated $500 million in annual synergies from the acquisition. However, according to its recent estimates, COP is on track to realize more than $1 billion in run-rate synergies by the end of 2025.
Risk Factors to Consider
Commodity Price Sensitivity: A primary risk factor for ConocoPhillips’ operations is the significant volatility in commodity prices and market conditions. Per the U.S. Energy Information Administration, oil prices are expected remain under pressure over the next year. If oil prices remain low over a longer period, it could limit the company’s earnings growth and hurt its stock value, even though it has a strong portfolio of assets.
Project Inflation: ConocoPhillips’ Willow project in Alaska has reported an updated total project capital of $8.5-$9 billion from the initial estimates of $7-$7.5 billion. The increase was primarily driven by general inflation, modestly higher on general labor and engineering equipment, and localized North Slope and marine cost escalation. Management has acknowledged that these cost overruns were rather disappointing. With the first oil from the Willow project expected in 2029, the project still has a few years to go, with major capital outlays expected. These rising costs could hurt project economics and undermine returns.
Given these factors, investors should consider adopting a hold strategy for the stock at present.
COP’s Zacks Rank and Key Picks
COP currently carries a Zacks Rank #3 (Hold).
Some top-ranked stocks from the energy sector are Oceaneering International (OII - Free Report) , Subsea7 S.A. (SUBCY - Free Report) and FuelCell Energy (FCEL - Free Report) . While Oceaneering currently sports a Zacks Rank #1 (Strong Buy), Subsea7 and FuelCell carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Oceaneering International delivers integrated technology solutions across all stages of the offshore oilfield lifecycle. The company is a leading provider of offshore equipment and technology solutions to the energy industry. OII’s proven ability to deliver innovative, integrated solutions supports ongoing client retention and new business opportunities, ensuring steady revenue growth.
Subsea7 helps build underwater oil and gas fields. It is a leading player in the global offshore energy industry, providing engineering, construction and related services at offshore oil and gas fields. The long-term outlook for energy demand remains positive, and Subsea7’s focus on cost-efficient deepwater projects strengthens the position of its subsea business.
FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, FCEL is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.