As ConocoPhillips (COP) takes a breather from its long bullish run, let's take a look at the oil company. It is making future plans to continue to make its earnings look attractive, as well as position itself for additional long-term revenue streams from natural gas in Asia.
Reducing Non-Core Overseas Assets
ConocoPhillips has decided not to further explore two blocks in Peru as part of the U.S. oil company's strategic plan to reduce non-core overseas assets. It has already exceeded its target of asset sales worth $20 billion by the end of 2012. ConocoPhillips has been looking to sell assets in a number of countries, including Nigeria, as part of a global restructuring. The company is also selling as much as 50% of its oil-sand reserves in Alberta. ConocoPhillips is ready to sell its stake in Kazakhstan's Kashagan oilfield, and the Central Asian nation is eager to acquire this share.
A Future Alliance With China
ConocoPhillips may see its future revenue stream come from natural gas production in China. The nation has 17 shale fields that it is putting up for auction and ConocoPhillips is seriously considering putting it into their production portfolio. In the U.S., the hydraulic fracturing technology transformed the natural gas industry. Even though there is a glut now, without this technology, the U.S. output would not have risen 40% and we would be looking for more imports causing crude prices to rise much higher than they are right now.
China wants to tap its shale reverses. It has a huge appetite for energy and natural gas is a very good option. The nation's estimated recoverable reserve stands at 1.28 trillion cubic feet. Total reserves may be at high at 26 trillion. China consumes 39 billion cubic feet per day, so the market is there. This would help the country cut down on its natural gas imports from Australia. It is quite possible that ConocoPhillips could play a big role in this market.
With the potential future earnings combined with the excellent non-core asset sales strategy in affect, I see the stock continuing to move up.
Click to enlarge image.
Since mid-June, COP has been in a bullish peak and valley trend, using the 50-day MA as support. Recently, it has been leveling off and the stock is trading much tighter with fewer swings. As it levels out, the RSI indicator still shows a lot of strength because the stock is hanging above the 50 line that defines strength and weakness. Because of where it is, this smoothing out of the stock does not look like weakness is setting in for a turn back. It looks more like the stock is consolidating -- or in the beginning phases of consolidating. The MACD indicator supports the consolidation, but that is all. At the same time, I have observed the Bollinger Bands getting tighter and tighter. From the chart, it looks as if the stock is taking a break from its move up. But there is no indication that the stock is getting ready to turn around and become bearish.
The Options Play
The stock is presently trading around $58.12. I am expecting the stock to continue up after a rest. I am not bearish on the stock at this point, so I am looking for a bullish lean on an income play.
- Buy the January 2013 call with a strike of "57.50" (priced at $2.39)
- Sell the January 2013 call with a strike of "60.00" (priced at $1.13)
- Net Debit to Start: $1.26
- Maximum Profit: $1.24
- Maximum Risk: net debit
- Maximum Length of Trade: three months
Reasoning Behind the Trade
- Trade with the present trend, as I do not see a bearish influence at this point.
- Non-core asset sales are going better than expected, reducing costs that help to increase profits.
- Investors like this.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.