Conoco Plans Share Buyback That’s Almost 50% of Market Value




Conoco Plans Share Buyback That’s Almost 50% of Market Value


(Bloomberg) -- ConocoPhillips (NYSE:COP) announced a 10-year plan to buy back $30 billion of shares, equivalent to about half of its current market capitalization, as the oil producer attempts to distance itself from the troubled U.S. shale industry.

The company also said it will pay dividends of about $20 billion over the period and limit average capital expenditure to about 10% above current levels.

Chief Executive Officer Ryan Lance told investors and analysts at a presentation in Houston on Tuesday that the long-term plan sets the company apart from its peers amid a fight to regain the interest of shareholders in U.S. oil and gas, one of the worst-performing sectors this year.

“The industry faces a flight of sponsorship by investors,” Lance said during the presentation. There’s a “struggle for relevance unless the industry can create value on sustained basis.”

After being forced into a painful dividend cut during the 2014-2016 oil price crash, the third-largest U.S. oil producer has regrouped under Lance and has built a reputation of being one of the more dependable producers, differentiating itself from other shale operators that have disappointed on production and earnings. Energy stocks have shrunk to less than 5% of the S&P 500 Index, less than half the level a decade ago, after shale producers burned through nearly $200 billion of cash in pursuit of surging flows of oil and gas.

With investors focused on returns rather than output expansion, Conoco is busy morphing into a low-growth but high cash-generating company that’s built to withstand low crude prices and peak oil demand, which the International Energy Agency says could happen around 2030.

Conoco’s plan “shows sustainability over a long period” and a business model “that can deliver competitive returns and appeal to a wide range of investors,” Scott Hanold, an analyst at RBC Capital Markets LLC, said in a note.

Conoco was 1.1% higher at $57.31 at 11:44 a.m. in New York trading. The stock has dropped 8.1% this year, while the Standard and Poor’s 500 Energy Index has advanced 1.6%.

Investors have delivered stinging rebukes to energy companies this year for paying substantial premiums for acquisitions, such as Occidental Petroleum Corp (NYSE:OXY).’s $37 billion deal for Anadarko Petroleum Corp (NYSE:APC). Chief Operating Officer Matt Fox admitted that the “elephant in the room” is the possibility Conoco will use its cash hoard for a major deal.

“Obviously we can’t and we shouldn’t rule that out, but we can rule out doing a bad acquisition driven by the wrong reasons,” Fox said during the presentation. “We’re not going to do something that undermines our financial framework.”

Conoco also has conventional production in Alaska, Europe and Asia, while also operating in shale basins. Though Conoco aims to avoid the pitfalls of rival shale producers, the sector will provide much of the company’s growth and account for about 60% of its capital expenditure over the next decade. Its shale production from the Permian Basin, Eagle Ford, Bakken and Montney in Canada will more than double to 900,000 barrels a day by 2029.

Conoco said it will stick with about 20 drill rigs and won’t try to chase higher production in times of high crude prices, which tends to destroy shareholder capital, Fox said.

“Unfortunately, we know this because we did it,” he said.

(Updates share price in last paragraph.)





Related News

NFL notebook: Giants officially give Manning starting nod
Today, 02:09
Eli Manning will start at quarterback for the New York Giants against the Philadelphia Eagles on Monday night in place of rookie Daniel Jones, who has been ruled out with a high-ankle sprain, the team announced Saturday. Manning, 38, has not started
North Korea carries out 'very significant' test at satellite launch site: KCNA
Today, 02:06
SEOUL (Reuters) - North Korea has carried out a "very significant" test at its Sohae satellite launch site, state media KCNA reported on Sunday, a rocket testing ground that U.S. officials once said North Korea had promised to close. The
Australian firefighters try to control bushfires ahead of hot days
Today, 02:03
By Lidia Kelly MELBOURNE (Reuters) - Firefighters in eastern Australia used easing weather conditions on Sunday to bring bushfires under control ahead of forecast of soaring temperatures for next week. There were 96 fires burning in New South Wales,
Hong Kong gears up for mass rally as government appeals for calm
Today, 01:03
HONG KONG (Reuters) - Hong Kong was gearing up for a mass rally on Sunday that is expected to gauge support for pro-democracy demonstrations in the Chinese-ruled city as the government appealed to people to express their views peacefully. Police
Shooting near Mexico's presidential residence leaves four dead - local media
Today, 00:06
MEXICO CITY (Reuters) - A shooting on Saturday near Mexico's National Palace, the president's residence in the capital's historic downtown, has left four people dead and two people injured, Foro TV reported. Mexican President Andres



Latest News
NFL notebook: Giants officially give Manning starting nod
08.12.2019 02:09
Eli Manning will start at quarterback for the New York Giants against the Philadelphia Eagles on Monday night in place of rookie Daniel Jones, who has been ruled out with a high-ankle sprain, the team announced Saturday. Manning, 38, has not started since Week 2. He passed for 556 yards, two touchdowns and two interceptions before the Giants
Read more
North Korea carries out 'very significant' test at satellite launch site: KCNA
08.12.2019 02:06
SEOUL (Reuters) - North Korea has carried out a "very significant" test at its Sohae satellite launch site, state media KCNA reported on Sunday, a rocket testing ground that U.S. officials once said North Korea had promised to close. The KCNA report did not specify what was tested, but the site has previously been used to launch rockets
Read more
Australian firefighters try to control bushfires ahead of hot days
08.12.2019 02:03
By Lidia Kelly MELBOURNE (Reuters) - Firefighters in eastern Australia used easing weather conditions on Sunday to bring bushfires under control ahead of forecast of soaring temperatures for next week. There were 96 fires burning in New South Wales, home to Australia's largest city of Sydney, with only about a half contained and more than
Read more
Hong Kong gears up for mass rally as government appeals for calm
08.12.2019 01:03
HONG KONG (Reuters) - Hong Kong was gearing up for a mass rally on Sunday that is expected to gauge support for pro-democracy demonstrations in the Chinese-ruled city as the government appealed to people to express their views peacefully. Police gave the green light to Civil Human Rights Front (CHRF) - organizer of largely peaceful million-strong
Read more
Shooting near Mexico's presidential residence leaves four dead - local media
08.12.2019 00:06
MEXICO CITY (Reuters) - A shooting on Saturday near Mexico's National Palace, the president's residence in the capital's historic downtown, has left four people dead and two people injured, Foro TV reported. Mexican President Andres Manuel Lopez Obrador was traveling on Saturday.
Read more