Does ConocoPhillips Stock Face A Downside Risk?

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ConocoPhillips

The shares of ConocoPhillips (NYSE: COP) have touched the highs of $100 in recent months, assisted by skyrocketing benchmark oil & gas prices and rising transportation demand. In 2021, the company reported 1.04 MMBPD of liquid production which is almost 1% of the global crude oil output. While the geopolitical uncertainty due to the Russia-Ukraine war is leading to spikes in benchmark oil prices, rising inflation is jeopardizing global economic growth and triggering measures such as new energy security alliances. Our interactive dashboard on ConocoPhillips valuation highlights the historical trends in revenues, earnings, valuation multiple, and forecast for FY2022.

Before the pandemic, ConocoPhillips revenues observed a 15% annual growth from $24.3 billion in 2016 to $36.6 billion in 2019, assisted by benchmark prices and expanding production. COP’s average realized price for oil has ranged from $37/bbl in 2016 to $65/bbl in 2018 to $58/bbl in 2019. Due to a deep contraction in benchmark prices in 2020, the company reduced total crude oil & natural gas production by 15% as low production costs assisted cash generation. Moreover, the company retained dividend payouts by implementing a prudent capital investment plan and utilizing cash on hand. Given the recent surge in benchmark oil prices, the company has been returning excess cash to shareholders through dividends and buybacks. In a recent investor presentation, the company highlighted its plan to return $10 billion of capital to shareholders and accelerate debt reduction in 2022.

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EIA and World Bank project a downside in the Brent benchmark

In 2021, the company’s crude oil, natural gas, natural gas liquids, and other products contributed 51%, 37%, 4%, and 8% of total revenues, respectively. With revenues to be pushed by rising capital investments in oil & gas assets, the company announced a net-zero (only scope 1 and scope 2) roadmap by prioritizing opportunities in CCUS (carbon capture, utilization & storage) and hydrogen. Per EIA, the Brent benchmark is likely to trend downward from $103 in 2022 to $97 in 2023. Similarly, the World Bank expects Brent crude to observe a decline from $100 in 2022 to $92 in 2023 and $80 in 2024. While the West has imposed stringent sanctions on Russia, the oil & gas embargo is a difficult decision due to multiple transportation and economic concerns. (related: Can Amazon Stock Add Two Exxon Mobils To Its Market Capitalization?)

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 COP Return 10% 45% 109%
 S&P 500 Return -6% -18% 74%
 Trefis Multi-Strategy Portfolio -5% -21% 209%

[1] Month-to-date and year-to-date as of 5/23/2022
[2] Cumulative total returns since the end of 2016

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