Seeking Alpha
Long/short equity, value, deep value
Profile| Send Message|
( followers)  

ConocoPhillips (NYSE:COP) explores for, produces, transports, and markets natural resources (oil, gas, NGL, bitumen, etc) on a worldwide basis. It has operations in North America, Europe, Asia, and Australia. The company was founded in 1917 and is headquartered in Houston, Texas.

Market and Multiples

Market cap

$76,500

Enterprise value

$95,320

Shares out.

1,220

LTM EBITDA

$21,660

Closing price per share 5/08/13

$62.59

EV/EBITDA - LTM

4.4x

PEG ratio

2.71

EV / Proved BOE

$11.02

Share sold short / Days to cover

21.95 / 3.60

Total Proved PV-10 / share

$60.58

ROE

12.6%

EV / Daily production (BOE)

$59.72

Figures in millions, except per share

The latest

-Recently announced two successful off-shore exploratory wells:

  • WR98-1 Coronado discovered 400 ft of net pay (35% WI)
  • Shenandoah discovered more than 1,000 ft of net pay (30% WI)

-1st quarter earnings call on April 25

  • Production avg: 1,596 MBOED
  • Oil sands production up 30%
  • Eagle Ford, Bakken & Permian production represents 42% of total daily production
  • Two successful off-shore exploratory wells (above)
  • Completed sale of Cedar Creek Anticline to Denbury Resources
  • COP plans to dispose of interests in Kashagan, Algeria, and Nigeria which is expected to generate proceeds of approx. $8.5 billion

Outlook

  • Offshore: Conoco is a major player with the resources, capital, and historical success rate to continue discovering and developing off-shore wells. The recent discoveries were a great start to the year and I expect there will be several more to come as the year progresses. It will take a HUGE discovery to cause a big uptick in stock price though. Investors know they are good at what they do, new discoveries, pending the size, will be baked into price already.
  • Onshore - US: Same as above, they are involved in every major play in the US and they are either the most efficient driller or are on their way to being the most efficient driller in every play. They have the best people and technology to make that a consistent expectation.
  • International: Conoco has developed a great track record of developing international assets and creating great value by maintaining positive relationships with the foreign countries from which they earn the concession and they take proper steps to make everyone come out a winner. Again, consistency is something to expect here going forward.
  • Net Income Sensitivities: As stated by the company, here are some sensitivities that will give investors perspective on the type of macro-play Conoco is:
    • Crude
      • Brent - $75-85 MM: $1/bbl
      • WTI - $30-40 MM : $1/bbl
      • WCS - $20-25 MM : $1/bbl
    • North American NGL
      • Blend - $10-15 MM / $1/bbl
    • Nat Gas
      • HH - $115-125 MM : $0.25/Mcf
      • Int'l - $10-15 MM : $0.25/Mcf

Recommendation

Conoco is a macro play, plain and simple. If you think oil and natural gas prices, along with the global economy will stay consistent or increase/improve over the next couple decades, then this would be a good investment. It is painfully obvious that the super-majors such as Conoco are running out or big opportunities to pursue. Technology will change that as off-shore wells and unconventional plays around the world are tapped for their available resources.

Assuming Conoco avoids a BP type situation with major oil spills or some other disaster, you can expect consistent and moderate growth from this name. However, with the completion of its downstream operations the spin-off, Conoco has shifted its total focus to upstream operations and thus oil and gas prices play a major role in determining its performance. In particular, the company remains vulnerable to unstable movements in crude oil and natural gas prices. If you are bullish on oil and gas, accumulate your position on down days (watch for oil/gas build/draw reports from EIA and look for macro news out of China and OPEC).

In the meantime, you can collect the 4.22% dividend yield the stock pays, which is well above Exxon's (NYSE:XOM) 2.75% and Chevron's (NYSE:CVX) 3.24%.

Source: ConocoPhillips: A Closer Look At One Of The Supermajors