Energy corporation Conoco Phillips (NYSE:COP) will spend as much as $73 billion in capital through 2015, as the company tries to meet the production growth goals set forth at a recent analyst meeting. The company also indicated that it would expand its asset divestiture program and use the proceeds to accelerate its stock repurchase program.
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Conoco Phillips established a $13.5 billion capital budget for 2011, and will spend 90% of these funds in the upstream segment. This budget will be split about evenly between North America and the rest of the world. the company also estimates that it will spend between $14 billion and $15 billion each year from 2012 to 2015. The company has a goal of 5% compound annual growth rate in production per share from 2011 through 2015, and a 3-5% long-term growth rate in this metric.
Conoco Phillips strategy is to move 10 billion barrels of oil equivalent (BOE) of resources into proved reserves over the next 10 years. The company will leverage its properties across many areas to accomplish this goal, including liquids growth in the United States, along with major projects in the North Sea, Asia and Canada.
Conoco Phillips will invest $1.4 billion in 2011 towards developing the Eagle Ford Shale, where the company has 220,000 net acres under lease, and the company will put another $300 million into both the Permian Basin and Bakken areas.
In 2009, Conoco Phillips initiated a program to divest up to $10 billion of the company's non core assets during 2010 and 2011. The company made steady progress on this program in 2010, and sold $7 billion in assets during the year. The company announced an expansion of this program, and will sell an additional $5 billion to $10 billion of assets through 2012. This will bring the total divestiture program to $12 to $17 billion over the 2010 to 2012 period.
One major part of this divestiture program in 2010 was the sale of the company's stake in the Syncrude project to China Petroleum & Chemical Corp. (NYSE:SNP). Conoco Phillips received $4.65 billion for its interest in this project.
Conoco Phillips announced a $10 billion stock repurchase program in February 2011, and will use some of the proceeds of the asset sales to fund this new program. The company already had an existing stock buyback authorization of $5 billion at the time the new program was announced, and spent $4 billion in 2010 to repurchase its stock.
Conoco Phillips also paid out $3.2 billion in dividends to shareholders or $2.16 per share in 2010. In 2011, the company increased the annual dividend to $2.64 per share, marking the ninth consecutive yearly increase. Conoco Phillips has a current yield of 3.4%, higher than the dividend yield of Exxon Mobil (NYSE:XOM) at 2.1%, and Chevron (NYSE:CVX) at 2.7%.
The Bottom Line
Conoco Phillips will have to spend tens of billions in capital over the next five years to meet its goal of a 5% CAGR in production per share. The company is also dumping more assets and using the funds to buy back its own stock. (Changes in the price of oil aren't arbitrary. Read on to find out what moves them and why. Check out What Determines Oil Prices?)
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