ConocoPhillips Earnings: Dividend Boosted 14% Despite Decline in Profits

ConocoPhillips COP reported adjusted earnings fell to $2.6 billion in the third quarter, compared with $4.6 billion a year earlier on lower oil and gas prices. Despite the decline, earnings remain robust, supporting continued shareholder payouts. During the quarter, Conoco returned $2.6 billion to shareholders through its three-tier framework of ordinary and variable dividends and buybacks in the third quarter. The company also increased its regular dividend 14% to $0.58 per share given the ongoing strong results and favorable outlook.

Production during the quarter grew by 52 mboe/d to 1,806 mboe/d. Adjusting for acquisitions and dispositions, production increased by 49 mboe/d as organic growth from the lower 48 states and other development programs more than offset the decline and downtime.

Operating cash flow excluding working capital changes totaled $5.5 billion during the quarter, funding $2.5 billion of capital spending. Full-year capital expenditure guidance was unchanged.

During the quarter, Conoco purchased the remaining 50% interest in Surmont, a Canadian oil sands site, for $2.7 billion. Management updated guidance to account for the acquisition with full-year production now expected to be approximately 1.82 thousand barrels of oil equivalent per day compared with 1.80 to 1.81 mboe/d previously.

We plan to incorporate the latest guidance and results into our model along with an updated price deck, but we do not anticipate a material change in our $98 fair value estimate. Our narrow moat rating is unchanged. Shares are overvalued, in our opinion, assuming a $60/bbl midcycle price. However, prices are currently well above that level and as demonstrated this quarter, management remains intent on returning excess cash to shareholders. We think this capital discipline combined with a high-quality asset base and leverage to commodity prices makes Conoco attractive, absent valuation.