ConocoPhillips Earnings: Shareholder Return Strategy Continues To Pay Off, but Shares Look Pricey

ConocoPhillips COP reported adjusted earnings increased to $2.2 billion in the second quarter, compared with $5.1 billion a year earlier on lower oil and gas prices. The company also continued to utilize its three-tier framework to return cash to shareholders, distributing $2.8 billion in ordinary and variable dividends and repurchasing $3.0 billion in shares through the first half of the year. Management reaffirmed their full-year distribution target of $11 billion remains unchanged.

ConocoPhillips also made minor changes to production estimates. They increased full-year production estimates to 1.80-1.81 thousand barrels of oil equivalent per day from 1.78-1.80 mboe/d and made accompanying changes to capital expenditures and depreciation.

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. The shares trade at our fair value estimate, which assumes $60 per barrel of oil in the long term.

Production during the quarter grew by 113 mboe/d to 1,805 mboe/d, boosted by record production from the lower 48 U.S. states. Adjusting for acquisitions and dispositions, production increased by 100 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 $4.7 billion during the quarter, less than $2.9 billion of capital spending and $2.7 billion in shareholder returns.