ConocoPhillips COP has released a summary of its 2018-2020 operating plan and strategy for long-term value creation.
Based on a flat real West Texas Intermediate (WTI) price of $50 per barrel, annual capital expenditure is expected to average $5.5 billion in the next three years.
The company anticipates cash return on capital employed to be more than 20% by 2020 and sustaining capital of about $3.5 billion. The average sustaining price is estimated at less than $40 per barrel.
ConocoPhillips proposes to distribute more than 30% of cash from operating activities to shareholders annually, through dividends and share buybacks. The company has also extended $1.5 billion per year of share repurchases through 2020, taking the total amount of buybacks to $7.5 billion.
In 2019, debt is expected to decline to $15 billion. Total share buybacks of $7.5 billion and decrease in debt to $15 billion will result in a 20% drop in debt-adjusted share count by 2020-end.
Assuming underlying production compound annual growth rate (CAGR) of 5% and cash margin CAGR of more than 5%, the company expects cash flow CAGR of more than 10%.
Returns are expected to improve on efficient management of the company’s resource base of 15 billion barrels of oil equivalent at an average cost of supply of below $35 a barrel.
With respect to social obligations, ConocoPhillips aims to lower greenhouse gas emissions by 5-15% by 2030.
ConocoPhillips’ attention to efficiency has led it to lower the capital need in its business as well as helped it in reducing cost of supply. This has also strengthened its portfolio, helping the company achieve capital and cost efficiency.
Year to date, the company’s shares have returned 6.7% as against the industry’s decline of 5%.
Zacks Rank & Other Key Picks
ConocoPhillips currently sports a Zacks Rank #1 (Strong Buy). A few other top-ranked players in the energy sector are Braskem SA BAK, Statoil STO and ExxonMobil Corporation XOM. All these stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The largest petrochemical operator in Latin America, Braskem, delivered a positive earnings surprise of 68.54% in the preceding quarter.
Statoil, based in Norway, is a major international integrated oil and gas company. It saw an average negative earnings surprise of 8.44% in the last four quarters.
ExxonMobil, headquartered in Irving, TX, is engaged in exploration and production of crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. The company delivered average positive earnings surprise of 8.81% in the last four quarters.
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