ConocoPhillips (NYSE: COP) is firing on all cylinders as of late. The oil big’s legacy enterprise is performing extraordinarily nicely. In the meantime, the corporate is about to get a giant increase from closing its needle-moving acquisition of Marathon Oil (NYSE: MRO).
These elements are giving the oil stock the arrogance to return much more money to its shareholders. It is boosting its dividend and share repurchase program.
Drilling down into ConocoPhillips’ third-quarter report
ConocoPhillips just lately reported its third-quarter outcomes. The oil big produced over 1.9 million barrels of oil equal per day (BOE/d) through the interval, surpassing the excessive finish of its manufacturing steering. It achieved document manufacturing within the decrease 48 states, with sturdy outcomes throughout its Permian, Bakken, and Eagle Ford working areas. Its manufacturing rose 3% yr over yr after adjusting for acquisitions and asset gross sales.
That sturdy manufacturing helped mute a number of the impacts of decrease oil and fuel costs. ConocoPhillips realized a median of $54.18 per BOE within the interval, 10% decrease than the year-ago quarter. Because of this, its adjusted earnings declined from $2.6 billion to $2.1 billion.
Nonetheless, the corporate produced sturdy money flows through the third quarter. It generated $4.7 billion in money from operations. ConocoPhillips used $2.9 billion to fund capital bills to keep up and increase its operations. In the meantime, it distributed $2.1 billion to traders, together with repurchasing $1.2 billion of shares and making $900 million in money funds (dividends and its variable return of money (VORC)). That left the corporate with $7.1 billion of money on its steadiness sheet on the finish of the third quarter, together with one other $1 billion of long-term investments.
Pending acquisitions will gas even increased money returns
ConocoPhillips expects the fourth quarter to be an energetic one. It anticipates closing its $22.5 billion merger with Marathon Oil. The deal will deepen its portfolio, including high-quality, low-cost provide stock close to its current positions all through the decrease 48 states.
The corporate additionally expects the transaction to be instantly accretive to its earnings, money from operations, free money circulation, and return of capital per share. The corporate initially anticipated to seize at the very least $500 million in value and capital synergies throughout the first yr of closing the deal. Nonetheless, it now anticipates considerably exceeding that tally.
On prime of shopping for Marathon, ConocoPhillips additionally just lately agreed to bulk up on its place in Alaska. It exercised its rights and signed agreements to purchase further working pursuits within the Kuparuk River and Prudhoe Bay items for $300 million. That deal will enhance its earnings and money circulation from the state.
ConocoPhillips’ acquisition-fueled development is driving its elevated confidence that it might probably return extra cash to shareholders. The corporate has formally elevated its quarterly dividend payment by 34%, making its present VORC cost everlasting. The brand new dividend degree exceeds the prior peak earlier than the corporate needed to reset its dividend following the oil value crash in 2015. The oil firm plans to proceed rising its dividend sooner or later, aiming to be within the prime 25% of all dividend growers within the S&P 500 index.
On prime of that, the corporate’s board of administrators has accepted a rise in its current share repurchase authorization by as much as $20 billion. That is greater than sufficient to retire all of the shares it plans to difficulty to amass Marathon Oil (roughly $17.1 billion in fairness). The corporate plans to ramp up its repurchase tempo following the deal from its present fee of $5 billion yearly to round $7 billion, implying it may retire all of the shares it is issuing to purchase Marathon inside three years.
A top-tier oil inventory
ConocoPhillips’ technique of rising its U.S. operations has actually paid off for traders through the years. It is producing a gusher of money, a rising proportion of which it is returning to traders. With two extra acquisitions about to shut, the corporate ought to generate much more money sooner or later, giving it more cash to return to traders. These rising money returns may give ConocoPhillips the gas to supply sturdy whole returns within the coming years, making it a compelling long-term oil inventory funding as of late.
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Matt DiLallo has positions in ConocoPhillips. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
