ConocoPhillips (NYSE:COP) continues to do an admirable job of navigating the challenging oil market. This was evident during the third quarter as the energy company delivered expectation-beating production and earnings. The company's continued strong performance will allow it to keep rewarding its investors in the coming year.
Drilling depper into ConocoPhillips third-quarter results
Metric | Q3 2019 | Guidance or Expectations |
|---|---|---|
| Production | 1.322 million BOE/D | 1.29 million to 1.33 million BOE/D |
| Adjusted earnings (loss) | $0.82 | $0.74 |
DATA SOURCE: CONOCOPHILLIPS. BOE/D = BARRELS OF OIL EQUIVALENT PER DAY.
ConocoPhillips' oil and gas output came in near the top of its guidance range, rising 7% year over year. Driving that growth was a 21% year-over-year surge in production from the company's "big three" shale plays (Eagle Ford, Bakken, and Permian Basin). The oil company also benefited from development programs and major projects in Alaska, Europe, and Asia Pacific.
That high-end production growth enabled ConocoPhillips to deliver expectation-crushing earnings even though commodity prices fell 18% from the year-ago period. It also helped the company generate $2.3 billion in cash flow from operating activities. That was more than enough money to cover its capital spending ($1.7 billion) and dividend ($340 million). It used the remaining money as well as some cash on hand to repurchase another $750 million of its stock. However, ConocoPhillips more than replenished its cash position by closing $2.2 billion in asset sales during the quarter, enabling it to end the period with $8.4 billion in cash.
Overall, ConocoPhillips produced $1 billion in free cash flow, while returning 41% of its total cash flow from operations to shareholders. The company's ability to continue generating free cash, while still growing its cash position, led it to boost its dividend 38% while it plans to repurchase another $3 billion in shares next year.
IMAGE SOURCE: GETTY IMAGES.
A look at what's ahead for ConocoPhillips
ConocoPhillips' strong showing in the third quarter allowed it to reaffirm its full-year production guidance of 1.31 million to 1.34 million barrels of oil equivalent per day (BOE/D). However, the company did note that output will decline to a range of 1.265 million to 1.305 million BOE/D during the fourth quarter as a result of the sale of its U.K. assets during the third quarter. The company also left its 2019 capital budget unchanged at $6.3 billion.
The oil giant plans to give investors a much longer-term outlook next month when it hosts its analyst and investor meeting. It will provide a 10-year operating plan at that event, aimed at creating long-term value for shareholders. CEO Ryan Lance noted in the earnings press release that its strategy would "emphasize free cash flow generation with competitive returns on capital and returns of capital." That's no surprise given that the company has had tremendous success with that focus in recent years.
ConocoPhillips has already provided a glimpse of what's ahead by unveiling its 2020 capital returns plans, which include the big-time dividend boost and planned share repurchase target. Given its massive cash position, which will soon grow by another $1.4 billion as a result of the upcoming sale of its Australia-West assets, ConocoPhillips has nearly unparalleled financial flexibility to deliver its strategy.
ConocoPhillips' returns-focused plan continues to pay dividends
ConocoPhillips launched its current strategy in late 2016. It has focused on investing in high-return, low-cost oil projects so it could generate an increasing supply of free cash. That plan is clearly working, as evidenced by its strong third-quarter results. As the company is sticking with that strategy for the long haul, investors should reap the rewards in the coming years.
