ConocoPhillips vs. Hess: Which Should You Pick for Income and Growth?

ConocoPhillips and Hess are two oil behemoths with two different growth strategies, but which is the better play for investors looking for both income and growth?

Apr 25, 2014 at 9:04AM

ConocoPhillips (NYSE:COP) is one of the world's largest publicly traded oil exploration and production companies and is around three times the size of peer Hess (NYSE:HES).

However, during the space of the last five years Hess' market capitalization has grown 60%, and the company's diluted normalized EPS have jumped 173%. Over the same period, Conoco has only managed EPS growth of 40%.

So, as Hess' profits surge and the company's market capitalization chases ConocoPhillips', which company's shares are a better for investors looking for both income and growth?

Higher quality production
One thing that immediately stands out about Hess is the company's plans for growth and the favorable mix of assets the company has available to it .

For example, Hess' management is targeting production growth of 5% to 8% annually through 2017, most of which is expected to be liquids. Indeed, 80% of Hess' reserves are liquids based, an industry-leading oil linked asset base.

In comparison, ConocoPhillips' reserves are only 62% liquids. A higher percentage of liquids usually means higher profits as oil is more lucrative than gas to produce and sell.

Still, Conoco is targeting five-year production growth of 3% to 5% per annum through 2017 and has earmarked $16 billion of capital to reach this goal. According to management this output growth will come from higher-margin projects. Specifically, ConocoPhillips has allocated 95% of growth capex to develop projects with a profit margin in excess of $30 per barrel of oil equivalent.

However, it seems as if Hess is already outperforming Conoco when it comes to margins. Indeed, Hess has an industry-leading cash margin of $49 per barrel of oil equivalent produced during 2013. Conoco in comparison only reported a margin of $32.3 per BOE, making the company the seventh most profitable E&P player.

Looking at the above figures then, Hess appears to be the most attractive opportunity.

Nevertheless, the future of both companies depends on the success of their North American development programs.

North America is set to be a key battleground for growth during the next few years and Hess is powering ahead in the Bakken, targeting output of 150,000 barrels of oil equivalent per day by 2018 as well as becoming free cash flow positive by 2015.

Key to growth
Meanwhile, key to Conoco's growth is the company's presence within the Eagle Ford, where the company is the lowest cost and highest return operator within the region as seen in the chart below:


 Source: ConocoPhillips investor presentation. 

Conoco plans to increase its resources by nearly 40% within the Eagle Ford region as part of its growth strategy, targeting output of 250,000 barrels of oil per day by 2017. And with leading production margins it is likely that Conoco's profits will surge as a result of this output expansion.

Conoco is not only targeting growth within the Eagle Ford, the company also plans to develop several Gulf of Mexico properties as well as offshore prospects in Australia, Angola, and Senegal. Conventional and unconventional plays are also being developed within Norway, Indonesia, Poland, and Colombia.

The company has projects already under way in the U.S., Canada, Malaysia, Australia, the United Kingdom, and the Norwegian North Sea.

All in all then, both Conoco and Hess are primed for growth, but with higher profit margins per BOE extracted and a larger reserve of liquids Hess looks to be the better choice for growth.

That being said, one thing that needs to be taken into account is ConocoPhillips' dividend yield, which currently stands at 3.7% compared to Hess' minimal 1.1% yield. Of course, we need to take into account the fact that Hess' payout has been hiked 150% during the past year, which implies that further payout increases are in the cards in the future, although Conoco's payout is also expected to grow at a double-digit clip for the next few years; it's a tough call between the two.

But Hess offers something Conoco does not; share buybacks. During the 12 months ending December 2013 Hess spent $1.4 billion repurchasing stock, around $4.60 per share. If we add in Hess' $0.70 per share dividend paid during the year, the company returned $5.30 per share to investors during 2013, or in other words a yield of just under 6%.

Foolish summary
Overall then, it would appear as if Hess is the better company for investors seeking both income and growth. Hess has a much stronger plan for growth in place than ConocoPhillips, and the company is returning cash to investors equivalent to a yield of 6% per annum. 

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers