ConocoPhillips COP looks compelling at the moment. Given the company’s strong fundamentals, it seems like this is the right time to add the stock to your portfolio.
In terms of production and proved reserves, ConocoPhillips — headquartered in Houston, TX — is the largest oil and gas exploration and production player in the world. The company’s operations are spread across 17 countries, including the United States, Colombia, Chile, Norway, the United Kingdom and many other nations. Recently, ConocoPhillips received afavorableruling from the World Bank’s International Centre for Settlement of Investment Disputes for the seizure of its assets by the Venezuelan government in 2007. Per the ruling, Venezuela has to pay $8.7 billion to ConocoPhillips, making it one of the largest arbitration settlements ever.
Notably, the company currently has a Zacks Rank #2 (Buy), which means that it is poised to outperform the market.
Let’s delve deeper toanalyzethe factors that make this upstream energy player an attractive investment option at the moment.
Strategic U.S. Acreage Position
The bulk of acres that ConocoPhillips holds in the three big unconventional plays that include Eagle Ford shale, Delaware basin and Bakken shale plays are rich in oil. The company is planning to operate 10-11 rigs in these prolific plays through 2019. From the three unconventional plays, ConocoPhillips projects compound annual production growth rate of more than 25% in the 2017-2019 time frame. Notably, significant opportunities are left for ConocoPhillips in the Eagle Ford shale, wherein it owns about 3,400 undrilled locations that could lend access to almost 2.3 billion barrels of oil equivalent estimated potential reserves.
ConocoPhillips is focused on divesting non-core assets, so that it can allocate the funds for growth projects and acquisitions. Notably, the company generated $1.1 billion from its divestment program, which will be used for efficient capital allocation.
Moreover, ConocoPhillips’ 2019 capital spending is projected at $6.1 billion, marginally lower than 2018 levels. However, production is expected between 1,300 thousand barrels of oil equivalent per day (MBOED) and 1,350 MBOED, representing 5% growth on a pro-forma basis. The production growth is anticipated on the back of consistent ramp up of unconventional production in the Lower 48 and conventional production increases in Alaska.
Strong Balance Sheet
The balance sheet of ConocoPhillips is significantly less leveraged than the industry it belongs to. Importantly, in 2018, ConocoPhillips managed to reduce debt burden to reach its target of roughly $15 billion, much earlier than expected. The company has a debt-to-capitalization ratio of 32%, lower than the industry average. As of Dec 31, 2018, the oil giant, with a market capitalization of around $75 billion, had $6.2 billion in total cash, cash equivalents and restricted cash.
Increasing Shareholder Value
The upstream energy player is strongly committed to returning cash to its shareholders through dividend payments and share repurchases. In fact, investors would be thrilled to knowthat ConocoPhillips is planning to buy back $3 billion of shares through 2019, as it did last year. After raising dividend by 15% through 2018, the company is planning to grow its dividend further this year.
A clear picture is derived from the above-mentioned growth drivers, which differentiate ConocoPhillips from peers. The upstream giant has a strong acreage position in the United States, which is reflective of tremendous growth potential. The efficient management of the company can ensure that the targets are achieved within the expected time period and well within budget. A strong balance sheet, which its peers lack, provides management with financial flexibility to achieve its goals. The company has gained 26.2% in the past year compared with 7.6% collective growth of its industry.
Other Stocks to Consider
Investors interested in the energy sector can opt for other top-ranked stocks as given below:
Denver, CO-based Antero Resources Corporation AR is an upstream energy company. Its top line for 2019 is expected to increase 11.8% year over year. The stock currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Austin, TX-based Jones Energy, Inc. JONE is an exploration and production company. For 2019, its bottom line, which has witnessed one upside revision over the past 60 days, is expected to grow 19% year over year. The company currently holds a Zacks Rank #2.
Lonestar Resources US Inc. LONE is a Fort Worth, TX-based exploration and production company. Its top line for 2019 is expected to increase 6.4% year over year. It currently has a Zacks Rank #2.
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