TipRanks Smart Value #15: Energy Edge
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Dear Investors,
Dear Investors,
Welcome to the 15th edition of our recently launched TipRanks Smart Value Newsletter!
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This Week’s Top Value Pick: ConocoPhillips (COP)
ConocoPhillips (COP) is a U.S.-based global energy company focused on the exploration, production, and marketing of crude oil, natural gas, and natural gas liquids. With a presence across major resource basins in the continental United States, Alaska, Canada, Europe, Asia Pacific, and the Middle East, the company manages a diverse portfolio of conventional and unconventional assets. It follows a disciplined capital allocation strategy and leverages advanced technologies to enhance efficiency and lower emissions intensity. ConocoPhillips is committed to operational excellence, long-term resource development, and delivering strong shareholder returns.
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Upstream Unleashed
ConocoPhillips was formed through the 2001 merger of Conoco and Phillips Petroleum Company, which was finalized in 2002. Headquartered in Houston, Texas, the company quickly emerged as a leading independent exploration and production (E&P) company, with a diversified portfolio spanning unconventional U.S. shale, conventional international assets, LNG developments, and Canadian oil sands. In 2012, ConocoPhillips sharpened its upstream focus by spinning off its downstream operations into Phillips 66, a move that improved operational efficiency and capital discipline.
Over the following decade, the company pursued a series of strategic acquisitions to scale its operations and strengthen its portfolio. In 2021, it acquired Concho Resources and later that year bought Shell’s Permian Basin assets for $9.5 billion in cash, two major deals that expanded its footprint in the prolific Permian region. Two years later, ConocoPhillips became the sole owner of the Surmont oil sands facility in Canada after acquiring TotalEnergies’ 50% stake for $3 billion. Its largest deal to date came in November 2024, when it acquired Marathon Oil for $22.5 billion, adding high-quality, low-cost assets in the Delaware, Eagle Ford, and Bakken basins, along with operations in Equatorial Guinea.
These acquisitions have significantly deepened the company’s resource base and enhanced capital efficiency. By the end of 2024, ConocoPhillips reported 7.8 billion barrels of oil equivalent (BOE) in proven reserves and produced an average of 1,987 thousand BOE per day across its operations in 14 countries, including key regions like Norway, Qatar, and Australia. Through disciplined execution and targeted expansion, ConocoPhillips has solidified its position as one of the world’s largest independent oil and gas producers.
The company has executed a series of non-core asset divestitures as part of its ongoing portfolio optimization strategy. By the first quarter of 2025, the company had sold $600 million worth of Lower 48 assets in the U.S. In early May, it completed an additional $700 million sale of its stakes in the Ursa and Europa fields in the Gulf of Mexico to Shell, bringing total non-core, continental U.S. proceeds to $1.3 billion for the year so far. These assets collectively contributed about 8,000 barrels of oil equivalent per day to ConocoPhillips’ production before the sale. With most major sales now complete, the company expects future divestitures to be smaller and more selective, supporting its focus on low-cost, high-value opportunities.
With total assets of $122.8 billion, a workforce of around 11,800, and annual revenues of nearly $59 billion, ConocoPhillips has a market capitalization of approximately $120 billion and is ranked #75 on the Fortune 500 list.
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Global Reach
ConocoPhillips operates a global, upstream-focused energy business centered on the exploration, production, and marketing of crude oil, natural gas, natural gas liquids, and bitumen. Its revenue is generated through commodity sales linked to global or regional benchmarks, and its operations span six core regions: the Lower 48, Alaska, Canada, Europe, the Middle East and North Africa, and Asia Pacific.
The Lower 48 remains the company’s largest earnings contributor, driven by low-cost, short-cycle production from the Permian, Eagle Ford, and Bakken basins. This segment includes operations across the 48 contiguous U.S. states – primarily the Permian, Eagle Ford, and Bakken basins – and contributed 1,462 thousand barrels of oil equivalent per day (MBOED) in Q1 2025, representing approximately 61% of total company production. Until its divestiture to Shell in May 2025, ConocoPhillips’ Gulf of Mexico assets, including Ursa and Europa, contributed around 8,000 BOE per day – less than 0.4% of total output – and have since been removed from its production base.
In Alaska, ConocoPhillips is the state’s largest oil producer, with major interests in Prudhoe Bay, Kuparuk, and the Western North Slope, and holds about one million net undeveloped acres of exploration leases across Alaska. Canada contributes long-life, high-margin volumes through the Surmont oil sands and Montney shale, accounting for 10% of NGLs. Internationally, operations in Norway, Qatar, Libya, and Equatorial Guinea delivered 267 MBOED in 2024. In Asia Pacific, assets in China, Malaysia, and Australia contributed approximately 201 MBOED in 2024.
ConocoPhillips operates the Curtis Island LNG facility in Australia through a joint venture with Origin Energy and Sinopec that produces coal bed methane (CBM) from Queensland’s Bowen and Surat basins for domestic use and LNG export. In May 2025, it signed a key LNG export deal with Guangdong Pearl River in China, aligning with its broader gas-focused strategy, which includes interests in APLNG, Qatar LNG, and Port Arthur. APLNG is expected to distribute $800 million worth of LNG in 2025, down from $1.4 billion the previous year, due to lower LNG prices.
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Disciplined Growth
The company’s 2024 production averaged nearly 2 million barrels of oil equivalent (BOE) per day, supported by over 7.8 billion BOE in proved reserves, with a reserve replacement ratio of 244%1. Its diversified portfolio, low cost of supply, and high-margin assets underpin strong earnings and free cash flow. Strategic acquisitions – including Marathon Oil, its Permian assets, and full control of Surmont – have strengthened its resource base and improved capital efficiency. Post-merger, ConocoPhillips advanced Marathon’s integration, achieving $500 million in capex synergies by mid-2025 and lowering its full-year capital and operating expense guidance by a combined $700 million, all without cutting production. The Willow project, its flagship long-lead development in Alaska, remains on track for first oil in 2029, with construction about 50% complete by early 2025. Alongside LNG expansion, Willow is central to the company’s long-term growth strategy. A recent policy shift by the Trump administration to reopen parts of Alaska’s petroleum reserve could further support development in the region.
ConocoPhillips follows a disciplined investment strategy, prioritizing projects that can deliver at least a 10% return at $40 oil – its threshold for capital efficiency. Meanwhile, the company’s long-term planning is anchored at $60 oil, providing a conservative basis for budgeting and cash flow forecasting. With a deep inventory of low-cost opportunities, the company modulates capital spending in response to market conditions, viewing production growth as an outcome rather than a target. Given projected global demand growth of 0.8 million barrels per day in 2025 and limited new supply, ConocoPhillips believes it is well-positioned to sustain profitability even in a volatile environment.
As shale fields age, maintaining or improving efficiency is challenging due to natural declines in well productivity and increased maintenance requirements. ConocoPhillips continues to improve efficiency through advanced drilling technologies, data-driven well optimization, and global cost benchmarking. These efforts help offset natural production declines and rising maintenance costs, allowing the company to remain a low-cost operator.
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1- The reserve replacement ratio (RRR) measures how much proved reserves an oil company adds in a year relative to the amount it produces during that time.
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Financial Fortitude
ConocoPhillips has delivered consistent financial growth over the past five years, supported by disciplined capital allocation, strategic acquisitions, and a balanced global portfolio. COP’s revenues have grown at a CAGR of 14.2% while its EPS rose at a 19.3% over the same period. The company capitalized on oil and gas price cycles and production growth, particularly from assets added through acquisitions such as Marathon Oil, while maintaining cost control. This combination of portfolio optimization and operational consistency has enabled the company to outperform peers despite ongoing market volatility.
In the first quarter of FY25, COP reported revenue of $17.1 billion, up 18.1% year-over-year and ahead of consensus estimates. Adjusted EPS came in at $2.09, up slightly from $2.03 in the prior-year quarter and beating expectations. Operating cash flow stood at $6.1 billion, while cash from operations, excluding working capital changes, was $5.5 billion. This performance came despite a 6% decline in average realized oil prices, supported by a 5% increase in underlying production to 2,389 thousand barrels of oil equivalent per day (MBOED), driven by strength in the Permian, Eagle Ford, and Bakken basins.
The company maintains a strong balance sheet with $7.5 billion in cash and short-term investments and $23.8 billion in total debt as of March 31, 2025. In Q1, the company retired $0.5 billion in maturing debt, helping maintain its A-rated credit profile. It currently holds ratings of “A” from Fitch, “A-” from S&P, and “A2” from Moody’s, all with stable outlooks – reflecting prudent balance sheet management and consistent financial execution. Its 0.37 debt-to-equity ratio remains below the sector median.
Q1 capital expenditures totaled $3.4 billion, translating to free cash flow of approximately $2.1 billion. Reflecting efficiency gains and Marathon-related synergies, ConocoPhillips lowered its FY25 capex guidance to $12.5 billion at midpoint, down from ~$12.9 billion, and reduced its operating cost forecast to $10.8 billion at midpoint, a $200 million reduction from prior estimates. Notably, these adjustments were made without any reduction to production targets.
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Value Vision
ConocoPhillips continues to prioritize shareholder returns, underpinned by strong free cash flow and a disciplined approach to capital deployment. The company has maintained regular dividends for over 20 years without suspension, despite price cycles and market volatility.
In Q1 2025, COP returned $2.5 billion to shareholders, including $1.5 billion through buybacks and $1.0 billion via dividends, aligned with its long-standing goal of returning approximately 45% of cash flow from operations annually. Over the past 12 months, ConocoPhillips has repurchased $7 billion worth of shares, reducing its share count and supporting per-share value growth.
The company has declared a Q2 dividend of $0.78 per share, translating to $3.12 per share on an annualized basis. While ConocoPhillips did not raise its dividend over the past year, the payout has grown nearly 16% over the past five years. It distributes 39.8% of its earnings to shareholders, and its current dividend yield of 3.2% is in line with the energy sector average.
Supporting this capital return strategy is industry-leading capital efficiency: ConocoPhillips’s ROE, ROA, and ROCE rank in the top 20% of the sector – a reflection of high-margin assets, scale efficiencies, and disciplined reinvestment.
ConocoPhillips aims to return $10 billion to shareholders in 2025, with approximately 60% through buybacks and 40% through dividends, while preserving financial flexibility. Management has ruled out raising debt solely to fund repurchases.
Despite a nearly 13% stock decline over the past year, driven by weaker oil prices and macro uncertainty, analysts remain bullish, forecasting a 19.5% upside – with some projecting gains of up to 37%. Wall Street sees the Marathon acquisition as accretive, enhancing returns and asset life in key shale plays.
COP currently trades at 12.1x trailing and ~14x forward P/E, a modest premium to the sector median but still reasonably valued versus peers like Chevron and Diamondback. Its EV/EBITDA and Price/FCF ratios remain in the mid to low range compared to peers. Moreover, discounted cash flow analysis suggests the stock is undervalued by 16%, signaling a solid potential upside for long-term investors.
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Investing Takeaway
ConocoPhillips presents a compelling long-term investment case, grounded in disciplined strategy, operational execution, and a resilient global portfolio. Over the past several years, the company has expanded its resource base through high-quality acquisitions while actively streamlining its asset mix to prioritize low-cost, high-return projects. This focus has sharpened its competitive edge and improved capital efficiency. Its operating strength is underpinned by robust free cash flow, a strong balance sheet, and consistent returns of capital. ConocoPhillips continues to fund large-scale, long-cycle developments such as the Willow project and global LNG capacity, while preserving the flexibility to adjust spending in response to market conditions. A 20-year track record of uninterrupted dividends, coupled with meaningful share repurchases, underscores the company’s shareholder-first philosophy. With a diversified portfolio, cost discipline, and clear capital allocation priorities, ConocoPhillips is well-positioned to generate durable shareholder value across commodity cycles.
