Seeking Alpha
Tech, natural resources, energy, Geology
Profile| Send Message|
( followers)  

ConocoPhillips (NYSE:COP) is a daringly independent company in the oil and gas space. With a down-to-earth openness about it's role as a producer of fossil fuel resources, ConocoPhillips has taken a huge leap towards becoming a pure oil company, with a focus on the exploration and production of geologic resources of oil and gas.

By spinning off the "downstream" refining and marketing segment of its business, COP has increased the efficiency of its management and capital expenditures to generate returns for the investor. Oil and gas production is by far the cash cow of ConocoPhillips, and for that matter, any major oil and gas company.

The following chart from the COP 2010 Annual Report shows that the integrated company is already investing the vast majority of cash in Exploration and Production, as opposed to Refining and Marketing.


(Click to enlarge)

The tables below demonstrate that Exploration and Production (E&P) is responsible for the vast majority of revenues as well, especially considering that the adjusted earnings for Refining and Marketing (R&M) last year were largely a result of "impairment adjustments" (Financial gurus, help me out in the comments section with how they turned 192 million into 1.2 billion with the use of "impairments").

As stated by the company fact sheet, "In February 2011, ConocoPhillips approved a 2011 capital program of $13.5 billion, representing a significant increase in E&P segment expenditures. Almost 90 percent of the capital program will be in support of E&P, while the R&M segment represents about 9 percent of this year’s spending. The 2011 capital program is consistent with the company’s plan to enhance returns on equity through shifting capital to higher returning investments, maintaining capital discipline and funding growth in shareholder distributions."


(Click to enlarge)


(Click to enlarge)

In addition to now selling off its downstream business, ConocoPhillips, interestingly, spends virtually no funds on energy solutions outside of fossil fuels. So, while other oil majors spend billions on programs that have nothing to do with the exploration and production of fossil fuels, and at the same time support less profitable refining operations to give the impression of being integrated, and "clean" energy companies, ConocoPhillips is putting it's money on the business it knows best: Finding oil and gas in the ground, pumping it out, and selling it to the market.

Better yet, between ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips, COP is already paying the best dividend yield (3.5%), with the lowest P/E (9.08).

I am confident a leaner, meaner ConocoPhillips will only produce better results for shareholders in the future.

Source: ConocoPhillips: An Industry Leader