ConocoPhillips is the best-performing energy stock on the S&P 500 Energy Index this year. The news is all the more impressive because it is the only stock with a positive performance on the index in the year to date, Bloomberg reported this week, adding that the S&P 500 Energy Index has itself booked a 25-percent slide since the beginning of 2018, on track to finish with the worst annual performance since the 2008 crisis. Conoco clearly stands out.
In fact, the supermajor has been standing out in the oil crowd for a while now. Earlier this year, when the company announced it would be parting with some of its acreage in the Permian and South Texas, some were confused: wasn’t everyone flocking to the Permian? But Conoco made it clear it’s not an “at all costs” situation for it. The company offloaded some non-core assets worth US$250 million to focus on its priorities, among them higher shareholder returns and a focus on higher-return projects.
As of April this year, Conoco’s average sustaining cost per barrel was US$40. At the start of February, the company announced it will lift the 2018 dividend by 7.5 percent and buy back shares worth US$2 billion, despite booking a loss for 2017. During that year, Conoco also paid down US$7.6 billion in debt and bought back US$3 billion in shares. Besides, it reported a 200-percent organic reserve base replacement rate.
With such a track record after the 2014 price meltdown, what’s not to love about Conoco? The strategy it is using to recover from the crisis is what other supermajors are using, too: raise dividends, buy back shares issued in the heat of the crisis, pay down debt. However, it’s booking better results than the other supermajors.
Earlier this year, after it announced the Permian and South Texas asset sale, Conoco also said it will be divesting its business in the UK section of the North Sea. The price tag for the assets was an impressive one: US$3 billion for fields producing a total 67,000 bpd of oil equivalent as of the third quarter of this year and infrastructure. The supermajor is in exclusive talks with Ineos for the assets.
Conoco also pursued Venezuela’s PDVSA aggressively to enforce a court ruling awarding the supermajor with a US$2-billion compensation for the forced nationalization of its operations in Venezuela by the Chavez government. Conoco seized PDVSA assets in the Caribbean, which eventually forced the state-owned company to negotiate a payment schedule. This victory in a long-running dispute cannot have passed investors by.
The latest in the good news department for Conoco shareholders was the announcement of the 2019 budget, which revealed the company is rather upbeat about the future despite the recent slide in international oil prices. Conoco said it planned to pay shareholders more than 30 percent of cash from operations and buy back another US$3 billion worth of shares. It also said it would achieve free cash flow generation at oil prices of US$40 a barrel for West Texas Intermediate.
Conoco is not inventing the wheel. The company is using tactics that would make the most sense in a hypervolatile oil price environment. And these tactics are working better than they are working for its peers.
By Irina Slav for Oilprice.com
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