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The shares of ConocoPhillips rose on Thursday as the petroleum giant announced another $1 billion in share buybacks and a reduction in cost projections. ConocoPhillips (COP) finished the day up 3.3 percent at $62.88. The S&P 500 increased by 0.5 percent, while the Energy Select Sector SPDR ETF (XLE) increased by 1.7 percent.
Credit Suisse analyst William Janela and JPMorgan analyst Phil Gresh both expressed optimism following the company’s market update on Wednesday. ConocoPhillips, according to Janela, has one of the most attractive value propositions in the exploration and production business today. The $1 billion in further share repurchases takes the total repurchases for 2021 to $2.5 billion, including the $375 million repurchase accomplished in the first quarter. Janela predicted that the company’s “total cash return yield” in 2022 would be around 7% if the planned repurchases were combined with its 2.8 percent dividend, outperforming its large-cap E&P competitors’ 3.5 percent yields. He also mentioned that the firm has stated that buybacks, rather than variable dividends, will continue to be the principal vehicle for shareholder payments. ConocoPhillips’ acquisition of Concho Resources, announced last fall, was highlighted by Gresh as a growth engine that would allow the company to maintain strong free cash flow and shareholder dividend. Despite this, Gresh remains neutral on the stock, stating that he believes the majority of the stock’s upside potential has already been reflected in its pricing relative to his coverage group. ConocoPhillips, unlike competitors like Chevron and Exxon Mobil, retains an upstream-only business model, leaving it more vulnerable to oil price changes, according to Gresh. The company’s free cash flow break-even threshold after dividends, according to Gresh and Janela, is roughly $45 per barrel on the WTI. ConocoPhillips has ambitious expansion aspirations. The corporation plans to invest more than $2 billion in the development of Alaska’s Greater Willow Area. The crude-oil project is still awaiting permission from the courts. Construction was delayed earlier this year by the 9th U.S. Circuit Court of Appeals, which sided with environmental and Native American groups. The matter is now in front of the United States District Court for the District of Alaska. ConocoPhillips anticipates receiving a decision by the third quarter. If the project is approved by the district court, ConocoPhillips expects to begin extracting oil in 2024, with production reaching 100,000 barrels per day. To contact the editors at Barron’s, send an email to editors@barrons.com./n
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