ConocoPhillips cuts capex, but dividend remains king
ConocoPhillips (ticker: COP) held its annual analyst day this week, trimming capex like many of its peers, but reasserting the company’s commitment to maintaining its dividend payout.
The company plans to cut capex by 28%, more than their large-cap peers like YPF (3% cut), Statoil (8% cut), BP, Total (11% cut each) and ExxonMobil (12%), but still less the average of 34% in capital budget cuts from a total of 65 smaller companies compiled by EnerCom. The company expects its capital budget to average $11.5 billion per year from 2015 to 2017. The budget will focus on short-cycle, liquids-rich unconventional resources, particularly the Eagle Ford and Bakken, but also the Permian to a lesser extent. The company plans to reduce major project spending by 45% while increasing the budget for unconventional/conventional development by 50%.
ConocoPhillips plans to be cash flow neutral by 2017, despite low oil prices. Pavel Molchanov, an analyst with Raymond James, summarized the COP’s position by saying: “The company is pursuing operating costs reductions of $1 billion through 2017 via lower G&A and capturing cost deflation, with half of this set to be achieved this year. If the cash neutrality target were to be at risk, the main flex variable would be unconventional spending.”
During the company’s presentation, COP reiterated its position on maintaining its dividend and increasing payouts over time. Ryan Lance, Chairman and CEO of ConocoPhillips, said: “The dividends are top priority use of our cash. We will pay our shareholders first.”
ConocoPhillips’ full presentation can be found by clicking here.
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Analyst Commentary
Wells Fargo Securities, Roger Read 04.09.2015
We attended COP’s analyst day in New York on 4/8. We maintain our positive stance on COP – we believe COP’s spending flexibility, disciplined capex approach, substantial (44 billion boe) resource base, conviction towards a growing dividend and focus on returns over growth are all positives. While the dividend remains the top priority, the company has shifted its focus to shorter cycle projects (e.g. unconventionals), reducing opex and capex, reaching cash flow neutrality in 2017, and low “cost of supply” resources. COP still expects production growth through 2017 but has tempered expectations versus last year’s analyst day.
Raymond James, Pavel Molchanov 04.09.2015
Yesterday we attended Conoco's analyst meeting, which - to state the obvious - was rather overshadowed by the record-setting Shell/BG acquisition. Against this backdrop, Conoco did not make any major headlines but rather elaborated on existing guidance for 2015 through 2017. This includes production growth of 2-3% in 2015, a 2017 production target of 1,700 MBoe/d, and $1 billion in cost reductions - replacing last year's plan for 3-5% production and margin growth - with targeted capital spending of $11.5 billion, down from the pre- oil meltdown plan for $16 billion.
