ConocoPhillips to resume share buybacks in fourth quarter

Oct. 12, 2020

ConocoPhillips intends to resume share buybacks in this year’s fourth quarter with plans to repurchase $1 billion of its own stock. The company had previously suspended repurchases in April due to spending and production cuts in response to the sharp drop in oil prices.

ConocoPhillips expects to use available cash on its balance sheet ($7.2 billion end second quarter) to repurchase the stock. While the company reserves the right to determine the level and pace of the repurchase, it is the first oil producer to resume its repurchase program after the decline in oil prices this year.

“COP’s diversified portfolio construction, asset quality and business plan have long supported a high degree of strategic flexibility. The company’s decision to restart the buy back in the fourth quarter, even in the current environment, highlights the benefit of such flexibility, with sufficient balance sheet strength and organic breakeven (2021 estimated post-dividend breakeven of $44/bbl WTI), to take advantage of counter-cyclical, accretive share repurchases,” Simmons Energy said in a research note.

Meantime, the company’s decision to resume share repurchase is likely indicative of an absence of compelling large-scale inorganic opportunities, Simmons Energy continued.

“At our Gleneagles conference, COP noted that while M&A was possible, it also acknowledged that the market for accretive assets to its low cost of supply backlog was neither ample nor inexpensive. Subsequently, given its excess cash pile, it’s hard to argue against the value accretion presented by repurchasing shares currently yielding over 5%.”

ConocoPhillips estimates an adjusted loss in this year’s third quarter of $210-260 million, while analysts estimate a loss of $243.8 million.

It also forecasts quarterly production of 1.05-1.07 MMboe/d, including net curtailments of 90,000 boe/d. The company reported a production of 1.32 MMboe/d in the same period last year, excluding Libya.

ConocoPhillips said that by the end of the third quarter it had fully resumed production in the Lower48, Alaska, and Canada.