ConocoPhillips (COP 0.39%) is swimming in cash these days. The oil and gas producer generated $7.2 billion of cash from operations in the third quarter, bringing its 2022 tally to more than $22 billion. That's giving it an enormous windfall to allocate in creating value for shareholders.
The company recently provided details on how it plans to use that cash. One of the highlights was an eye-popping $20 billion increase in its share repurchase program. Here's a closer look at the company's cash flow and how it's using its oil-fueled windfall.
Capitalizing on rising energy prices
ConocoPhillips produced 1.754 million barrels of oil equivalent per day (BOE/D) during the third quarter. That's an increase of 210,000 BOE/D from the prior year-ago period due to acquisitions and organic production growth, primarily in the lower 48 states. Its lower 48 output reached a milestone of more than 1 million BOE/D.
That surging production enabled ConocoPhillips to cash in on higher prices. The company sold its output for an average of $83.07 per BOE in the quarter. That's 46% higher than the year-ago period.
This combination of higher production and prices enabled ConocoPhillips to produce $7.2 billion of cash from operations in the period, boosting its year-to-date tally to $22.1 billion. The company also closed about $400 million of non-core asset sales, pushing its total to $3.4 billion. Add in working capital changes, and ConocoPhillips produced a prodigious $25.7 billion of cash during the first nine months of this year.
Allocating the windfall
ConocoPhillips has five clear priorities for its cash flow:
- Sustain its production and pay its based dividend.
- Deliver annual dividend growth.
- Maintain an A-rated balance sheet.
- Return at least 30% of its cash from operations to shareholders.
- Make disciplined investments to enhance returns.
As the following chart shows, the company has allocated its cash toward its priorities this year:
Data source: ConocoPhillips.
The energy company made $7.6 billion of capital investments, including acquisitions. That enabled it to sustain its production (priority no. 1) and enhance returns (no. 5). It also returned $9.9 billion to shareholders by paying its base dividend, making variable return of cash payments, and repurchasing shares. At 45% of its cash from operations, these returns achieved its first and fourth priorities. Finally, the company repaid $3 billion of debt to satisfy priority No. 4.
The company also unveiled future plans for its cash flow in its third-quarter earnings release that align with its financial priorities. These include:
- Increasing its dividend by 11% to achieve its second priority.
- Boosting its share repurchase authorization by another $20 billion to continue returning at least 30% of its cash from operations to investors.
- Expanding its global liquefied natural gas (LNG) portfolio to enhance returns. It's participating in QatarEnergy's North Field South LNG project and agreed to terminal services in Germany for a prospective LNG import terminal.
Of all the moves ConocoPhillips is making, the one that stands out is the massive $20 billion boost to the share repurchase authorization. That brings the total current authorization to $45 billion. Since launching the program in 2016, ConocoPhillips has repurchased $20.7 billion in shares.
The $20 billion increase is almost 12% of the company's outstanding shares, given its current market cap of less than $170 billion. Add in what's remaining on the company's existing authorization, and ConocoPhillips can retire a significant number of its outstanding shares. That should help keep the stock price from sliding too deeply if oil prices decline while providing an additional boost if crude remains high.
Generating and returning a lot of cash to shareholders
ConocoPhillips' recent investments to boost its oil and gas production are paying off, enabling it to capitalize on higher energy prices this year. It's producing gushing cash flows, giving it a massive windfall to allocate on behalf of shareholders. It's returning a large portion of that money to investors via a growing dividend and monster share repurchase program. With more cash heading to shareholders in the future, this oil stock is a great one for those looking to cash in on higher energy prices.
