In late 2016, ConocoPhillips (COP -0.34%) charted a new course. It aimed to transform itself from a highly diversified oil- and gas-producing giant to a company focused on low-cost, high-return energy assets. It has come a long way over the past few years by selling off higher-cost properties and using the cash to pay down debt and buy back stock. These moves have paid big dividends for investors. The oil giant has generated an impressive total return of more than 50% over that time frame, well above the negative 12% total return of oil stocks in top oil ETF SPDR S&P Oil and Gas Exploration & Production EFT.

That success could continue after the company agreed to sell most of its remaining assets in the U.K. for $2.675 billion. The deal will further reduce the oil giant's cost structure while giving it more cash to allocate to value-creating initiatives. It also gives investors one more reason to consider buying this market-beating oil stock.

An offshore oil production platform at sunset

Image source: Getty Images.

Drilling down into the deal

ConocoPhillips is selling two subsidiaries in the U.K. to Chrysaor E&P Limited for $2.675 billion in cash. Those business own the company's remaining oil- and gas-producing assets in the country. They pumped out an average of 72,000 barrels of oil equivalent per day (BOE/D) during 2018 and held an estimated 99 million BOE of reserves. That's a small slice of the company's total output, which averaged 1.242 million BOE/D last year. It's also a fraction of the company's total reserves, which were 5.3 billion barrels at the end of 2018.

In commenting on the deal, CEO Ryan Lance noted that, "this disposition is part of our ongoing effort to hone our portfolio and focus our investments across future low cost of supply opportunities." The company deemed these assets expendable because they were higher cost and had lower investment returns compared to others in the portfolio.

This sale is one of several the company has announced in the past year. Earlier this month, the company sold its 30% interest in the Greater Sunrise Fields to the government of Timor-Leste for $350 million. Meanwhile, late last year, the company traded its 16.5% interest in the Clair Field in the U.K. to BP. In return, ConocoPhillips received BP's 39.2% interest in the Greater Kuparuk Area in Alaska and a 38% stake in the Kuparuk Transportation Company.

In each of these deals, the company has unloaded higher-cost properties for either cash or an increased stake in a core asset.

What ConocoPhillips will do with this money

ConocoPhillips ended 2018 with $6.4 billion in cash. That adds to an already top-tier balance sheet after the company paid off $4.7 billion in debt last year. That put the oil giant at its targeted debt level, which credit rating agencies rewarded by upgrading it to a single-A rating. Meanwhile, the company can fully fund this year's $6.1 billion capital program at $40 oil. Because of these factors, ConocoPhillips has more cash than it needs to operate its business, especially with crude prices now in the mid-$60s.

Given its financial strength, the company will likely use the proceeds to boost its share buyback program. ConocoPhillips already intended to repurchase another $3 billion in stock this year. It planned to fund half of those repurchases with cash flow, assuming oil averaged $50 a barrel, and the rest with cash on hand. However, with both numbers rising thanks to higher oil prices and recent asset sales, the company could accelerate its share repurchase activity. Prior buybacks have already retired about 7% of its outstanding shares, which has helped fuel some of ConocoPhillips' outperformance in recent years. As such, an acceleration of the repurchase program could give it an added boost.

The perfect oil stock for today's oil market

ConocoPhillips has worked hard to reposition the company into a low-cost oil producer. That allows it to thrive at lower prices while generating a gusher of cash at higher oil prices. The recent sale of the rest of its U.K. oil and gas assets is another step toward reducing costs, which should enhance its ability to generate strong total returns for shareholders. It's another piece of evidence in the thesis that ConocoPhillips is one of the top oil stocks to buy for the long term.