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ConocoPhillips (NYSE:COP) is a pressure to be reckoned with within the vitality sector, with operations throughout the globe and a monitor report of excellent shareholder returns. Over the previous yr alone, the corporate’s inventory value has surged by over 80% due to rising vitality costs, outperforming all different main gamers within the business. Along with its spectacular oil success, ConocoPhillips additionally occupies a distinguished place within the North American liquefied pure gasoline (LNG) market; it’s the second-largest LNG producer in North America.
Whereas the Russia-Ukraine battle has offered some challenges for international oil and gasoline corporations (as opposesd to extra localized gamers who do not should cope with geopolitical tensions), ConocoPhillips has demonstrated a formidable degree of resilience, efficiently navigating this complicated and rapidly-changing political panorama.
Europe’s want for ex-Russia vitality sources has led to an increase in LNG imports. In accordance with ReportLinker, the worldwide LNG market was estimated to be value $95.7 billion in 2020 and is predicted to develop to $184.4 billion by 2027. This represents a compound annual development price of 9.8%. ConocoPhillips has been in a position to thrive by coming into new LNG markets in addition to benefitting from general increased vitality costs.
ConocoPhillips is rewarding buyers in a giant means
ConocoPhillips’ success is much more encouraging for buyers after we think about its historical past of profitable shareholder returns. The corporate retains round ample money, with over $10.7 billion in short-term investments, so it will probably afford to steadily enhance its dividend. It additionally has a major share buyback program value $45 billion.
After reporting spectacular outcomes for the third quarter, together with adjusted earnings per share of $3.60 and income of $21.61 billion, ConocoPhillips is well-positioned to lift its shareholder dividends within the close to future, so I’m hoping to see extra bulletins on this entrance quickly. For instance, ConocoPhillips has introduced plans to extend its quarterly dividend by 11% to $0.51 per share. The corporate additionally licensed a further $20 million for its share buyback program.
Within the third quarter, ConocoPhillips returned $1.5 billion to shareholders by dividends and $2.8 billion by buybacks. Some would possibly see this coverage as dangerous. Nevertheless, the corporate reported a free money circulation determine of $4.7 billion for the quarter, making the shareholder return fairly safe in my view. The corporate’s fortress-like stability sheet has loads of room left to extend shareholder returns.
Aggressive acquisition spree
ConocoPhillips has been on the forefront of the LNG market lately and has made a number of key strikes to strengthen its market share on this quickly increasing business.
For instance, on the finish of October, ConocoPhillips turned the third accomplice in QatarEnergy’s North Subject South LNG scheme, buying a 6.25% stake within the mission. Moreover, in July, the corporate introduced plans to amass a 30% stake in Sempra’s Port Arthur LNG mission.
Along with these strategic partnerships, ConocoPhillips has additionally made vital investments in growing new oil and gasoline sources inside its portfolio. In February of this yr, the corporate additional elevated its stake in Australia Pacific LNG by 10% to 47%, considerably boosting its holdings on this key vitality useful resource.
Earlier this yr, ConocoPhillips proposed a plan to develop Ekofisk North oil discovery within the Norwegian North Sea – an oil reservoir estimated to carry between 50 million and 90 million barrels of reserves. With ConocoPhillips holding a 35.1% stake on this profitable mission, it’s clear that the corporate is utilizing its robust money place to full benefit with vitality exploration and improvement. Finally, ConocoPhillips’ give attention to LNG and ongoing investments throughout numerous markets make it an business chief to observe transferring ahead.
Dangers to the expansion story
Whereas ConocoPhillips is undeniably doing nicely proper now, the oil and gasoline business is characterised by excessive volatility, and ConocoPhillips is especially susceptible to market fluctuations. Threats to the sector can considerably influence share costs and investor returns, whether or not because of shifting provide and demand traits or geopolitical elements resembling warfare. Moreover, the worldwide shift in the direction of extra environmentally-friendly vitality sources might devalue oil and gasoline shares sooner or later as buyers look to the long-term, despite the fact that we are going to seemingly proceed utilizing fossil fuels till they run out.
Furthermore, as international locations like China and India focus their vitality efforts on rivaling Russian oil and gasoline producers, there’s a rising threat that ConocoPhillips will lose floor in a extremely aggressive market. All we now have to do is have a look at the U.S. shale oil growth to see what can occur to associated shares when a big nation decides to struggle for a prime place within the international vitality sphere.
However, ConocoPhillips stays one of many prime oil and gasoline corporations globally, with a few years of experience on this discipline. Because of its superior know-how and entry to essential sources, ConocoPhillips is well-positioned for achievement regardless of ever-changing market situations in my view. I consider the shareholder return technique makes up for the volatility.
Takeaway
ConocoPhillips is without doubt one of the greatest oil and pure gasoline producers on the earth, and its development within the LNG area has propelled it to even better heights. This success may be attributed to a number of elements, together with the corporate’s skill to reap the benefits of market conditions and make strategic investments in addition to the Russia-Ukraine warfare.
ConocoPhillips continues demonstrating robust monetary efficiency and is constantly rising its shareholder returns. In truth, as the corporate has posted excellent quarterly outcomes over the previous a number of quarters, its main focus has been on shareholder returns.
Given these elements, I consider ConocoPhillips is poised to proceed to thrive in even essentially the most difficult financial situations, making it an extremely priceless earnings play.
This text first appeared on GuruFocus.
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