Rising Commodity Prices And Higher Volumes To Drive ConocoPhillips’ 3Q

ConocoPhillips (NYSE: COP), one of the largest independent oil and gas companies, is set to release its September quarter financial results on 25th October 2018. The company has had a good year so far, rising 42% since the beginning of the year, backed by the strong growth in its revenue due to increasing  commodity prices. Further, the company’s profitability has also improved due to higher revenue as well as significantly lower debt levels. We expect the company to expand its production volume by focusing on its key basins – Eagle Ford, Bakken, and Delaware – which will drive its value in the long term.

We currently have a price estimate of $71 per share for ConocoPhillips, which is lower than its market price. View our interactive dashboard – ConocoPhillips’ Outlook For 2018 – and modify the key drivers to visualize the impact on the company’s valuation.

Key Trends To Watch Out For In 3Q’18

• The commodity prices have been on the rise since the beginning of the year, backed by the production cuts implemented by the Organization of Petroleum Exporting Countries (OPEC) and its allies. Brent crude oil price rose sharply in the third quarter and averaged $75.07 per barrel, 44% higher compared to the same quarter of last year. Given the jump in commodity prices, we expect ConocoPhillips to witness higher price realization in the quarter, which will bolster its top-line.
• Driven by the strong performance from its key assets – Eagle Ford, Bakken, and Delaware – the company had revised its 2018 production outlook by almost 2% to the range of 1.225-1.255 million barrels of oil per day (boed). Higher production, coupled with better pricing, will enable the company to report a strong growth in its revenue.
• Despite the recovery in the commodity markets, ConocoPhillips plans to restrict its capital investment to a sustainable level of $3.5 billion for 2018. This investment could go up to $5.5 billion, based on the pace of its production growth and recovery in the commodity markets. A lower capital spend will not only allow the company to meet its steady production targets but also effectively manage its debt reduction and shareholder distribution targets.

• In addition, ConocoPhillips has been working towards reducing its long-term debt obligations to better equip itself for the volatility in the commodity markets. The company achieved its $15 billion debt target at the end of 2Q’18, 18 months ahead of schedule during the quarter. Lower debt levels will result in lower interest costs, which will significantly aid the company’s bottom line in the coming quarters.
• ConocoPhillips had increased its share repurchase program by $1 billion last quarter, raising the company’s total repurchase authorization to $15 billion. Further, the company plans to grow its annual dividend at a consistent rate, indicating its willingness to share its growth with its shareholders. With a solid production volume, improving commodity prices, and a strong balance sheet, ConocoPhillips is well-positioned for a strong second half of 2018.

Do not agree with our forecast? Create your own price forecast for ConocoPhillips by changing the base inputs (blue dots) on our interactive dashboard.