ConocoPhillips (COP) Last Update 12/16/24
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% of Stock Price
Revenue
Gross Profits
Free Cash Flow
ConocoPhillips
STOCK PRICE
DIVISION
% of STOCK PRICE
Crude Oil
73.8%
$93
Natural Gas
19.3%
$24
Net Debt
8.8% $11
TOTAL
100%
$126
$114.91
Yours
Trefis Price
N/A
$96.26
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

ConocoPhillips Company

VALUATION HIGHLIGHTS

  1. Crude Oil constitutes 74% of the Trefis price estimate for ConocoPhillips's stock.
  2. Natural Gas constitute 19% of the Trefis price estimate for ConocoPhillips's stock.

WHAT HAS CHANGED?

Q3 2024 Snapshot

ConocoPhillips reported third-quarter 2024 earnings of $2.1 billion, or $1.76 per share, compared with third-quarter 2023 earnings of $2.8 billion, or $2.32 per share. Earnings decreased primarily due to the impact of lower prices. The company’s total average realized price was $54.18 per BOE, 10% lower than the $60.05 per BOE realized in the third quarter of 2023. It delivered a total production of 1,917 thousand barrels of oil equivalent per day (MBOED) in Q3.

Note: ConocoPhillips' FY'23 ended on December 31, 2023. Q3 FY'24 refers to the quarter that ended on September 30, 2024.

Guidance

Fourth-quarter 2024 production is expected to be 1.99 to 2.03 million barrels of oil equivalent per day (MMBOED). Full-year production is expected to be approximately 1.94 to 1.95 MMBOED, as compared to prior guidance of 1.93 to 1.94 MMBOED.

Merger With Marathon Oil

ConocoPhillips and Marathon Oil are merging in an all-stock transaction valued at $22.5 billion. The merger includes $5.4 billion of net debt. ConocoPhillips has announced the completion of its acquisition of Marathon Oil Corporation. As per the merger agreement, each share of Marathon Oil common stock was converted into 0.255 shares of ConocoPhillips common stock, with cash provided for fractional shares.

This acquisition will strengthen ConocoPhillips' position in the industry. This merger would create a company pumping 2.26M boe/day and add 1.32B barrels of proved reserves to the company's current 6.8 billion.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are the key drivers for ConocoPhillips, which present opportunities for upside or downside to the current Trefis price estimate for ConocoPhillips.

  • Crude Oil Price: ConocoPhillips' stock price is highly sensitive to crude oil prices as the company derives more than 60% of its total value, by our estimates, from the sale of crude oil. We believe that the recent plunge in oil prices could sustain over the near-term amid easing of curtailed output by the OPEC and non-OPEC allies and geopolitical tensions. According to our estimates, annual average crude oil prices (Brent) could average at around $62 per barrel this year and increase gradually by the end of our forecast period. However, if oil prices remain high for longer than what we currently expect and increase to around $137 per barrel by the end of our forecast period, there could be almost a 10% upside to our current price estimate for ConocoPhillips.

  • Price of Natural Gas: In 2010, approximately 1% of natural gas production came from shale sources. By 2014, this figure had increased to nearly 25%. Technological improvements have helped improve the ability of companies to discover these new resources. As a result of new discoveries of shale gas, there has been a decoupling between the prices of crude oil and natural gas.
    However, the oil slump that began in 2014 resulted in a sharp drop in natural gas prices. Thus, the company's natural gas price realization declined from $6 per mcf in 2014 to $3.80 per mcf in 2015 and further to $3 per mcf in 2016. Natural gas prices recovered to $3.90 per mcf in 2017 as oil prices recovered. In 2021, COP reported $6/mcf of natural gas prices due to global shortages. However, the prices shot up to $10.60/mcf in 2022 before falling hard to $3.90/mcf in 2023.
    We expect natural gas prices to continue to fall modestly this year before increasing gradually to levels of $5 over the next couple of years. However, if demand picks up further and prices rise to around $10 per mcf, there could be an upside of about 9% to our price estimate.

BUSINESS SUMMARY

ConocoPhillips is the world's largest independent exploration and production company, based on proven reserves and production of liquids and natural gas. After the spin-off of its midstream and downstream businesses into an independent company (Phillips 66), ConocoPhillips has become a pure-play exploration & production company. The company conducts exploration activities in 19 countries and supplements its income with equity stakes in other oil & gas and chemical companies. About 56% of its production consists of liquids, and about 44% consists of natural gas. Of the 56% that are liquids, roughly half is tied to Brent or international prices. The remaining 11% of liquids is tied to North American crude markers, NGL, or bitumen prices. On the natural gas side, comprising about 44% of its portfolio, roughly 45% consists of international gas. Price differentials between Brent and West Texas Intermediate (WTI), a widely used North American crude marker, have been narrowing of late. This has reduced the disparity in realized prices for crude oil in domestic and international markets. Price realized by the company on the domestic and international sale of natural gas is also different.

SOURCES OF VALUE

Crude oil exploration and production is the most valuable segment for ConocoPhillips for the following reasons:

Large base of proven reserves

The amount of proven hydrocarbon reserves is an extremely critical metric for any oil and gas exploration and production company. It directly impacts the company's production growth outlook, as it represents the total quantity of technically and economically recoverable oil and gas reserves owned by the company at a given point in time. ConocoPhillips' total proved hydrocarbon reserves stood at 6.8 billion barrels of oil equivalent at the end of 2023. This implies that the company holds enough reserves to be able to produce oil and gas for more than seven years at current production rates.

More importantly, ConocoPhillips has reported a greater than 100% reserve replacement ratio for the last five years. This shows that the company has been able to grow its reserve base through a successful exploration program consistently. Its average reserve replacement ratio for the last three years (excluding asset disposition) has been over 155%.

Enviable acreage position in the Lower 48 states

ConocoPhillips holds 13.6 million (as of 2023) net acres of onshore conventional and unconventional acreage in the Lower 48 states. The company's unconventional holdings include approximately 654,000 net acres in Delaware, 562,000 net acres in the Bakken, 199,000 net acres in the Eagle Ford, and nearly 248,000 net acres in other unconventional exploration plays. Currently, ConocoPhillips' activities in this region are mostly centered on the continued optimization and development of existing and emerging assets, with a particular focus on areas with higher liquid production.

KEY TRENDS

Improving volume-mix

ConocoPhillips' price-adjusted cash operating margins have also been helped over the past few years by the continuous improvement in its sales volume mix, which is primarily being driven by the development of its assets in the Lower 48 states. Liquids (crude oil and natural gas liquids) now represent 64% (as of 2023) of the total hydrocarbons produced by ConocoPhillips from the Lower 48 states, compared to just over 45% at the end of 2013, and their production has been increasing over the last few years.

Peak oil

It is estimated that a large part of the world's oil reserves has already been discovered. Recent statistics have indicated that global consumption has been outpacing reserve additions. Peak oil is a commonly used term to describe the point at which world oil output will reach a maximum and decline afterward.

However, many institutions, such as the International Energy Agency (IEA), believe that peak oil will not occur for another 25 years at the very least. Many governments across the world are promoting alternative energy measures to ensure that the supply and demand for energy will be met at all times to come.