ConocoPhillips (COP 0.61%) is already a cash-gushing machine. The oil and gas giant's low-cost operations enable it to produce significant free cash flow. This allows it to invest in growing its operations, return cash to investors through dividends and buybacks, and maintain its fortress-like financial profile.
The company's already robust cash flow will become even larger in the coming years. A combination of growth initiatives and cost savings is now on track to add $7 billion to its annual free cash flow total by 2029. That will give the oil stock even more money to return to shareholders.
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Drilling down into ConocoPhillips' second-quarter results
ConocoPhillips' ability to print cash was on full display during the second quarter. The company generated $4.7 billion in cash from operations, despite a 19% decline in the average price it realized per barrel of oil equivalent (BOE) sold during the period compared to the second quarter of last year. It was able to partially mute the impact of lower commodity prices by significantly increasing its production. Its output averaged nearly 2.4 million BOE per day in the quarter, 446,000 BOE per day higher than the year-ago period. ConocoPhillips benefited from its acquisition of Marathon Oil, as well as a 3% increase in output from its legacy operations.
The oil giant used that cash to fund $3.3 billion of capital expenditures and investments to maintain and grow its output. It also paid $1 billion in dividends, repurchased $1.2 billion of shares, and retired $200 million of debt at maturity. That brought its year-to-date total to $2.7 billion in share repurchases, $2 billion in dividend payments, and $700 million in debt reduction.
The company ended the quarter with $5.7 billion in cash and short-term investments, and $1.1 billion in long-term investments, backing its fortress A-rated balance sheet. It padded its cash position by closing the sale of $700 million of non-core assets during the quarter and $1.3 billion through the first half of this year. ConocoPhillips has recently agreed to sell an additional $1.3 billion of non-core assets, which should close early in the fourth quarter. As a result, it has exceeded its target of selling $2 billion of assets following its acquisition of Marathon.
The upcoming free-cash-flow growth wave
ConocoPhillips expects to generate significantly more free cash flow in the future. In the near term, the company expects higher cash distributions from its APLNG investment, tax benefits from the "one big, beautiful bill," and lower capital spending to boost its free cash flow in the second half of the year. That assumes oil prices remain near their current level in the $60 to $70 a barrel range.
The company also continues to expect to get a boost from its acquisition of Marathon Oil. It's on track to achieve its target of hitting $1 billion in cost savings from synergies by the end of this year, double its initial target of $500 million. Additionally, the company now expects to deliver another $1 billion in cost and margin enhancements by the end of next year.
Meanwhile, ConocoPhillips continues to anticipate its long-cycle investments in liquified natural gas (LNG) and Alaska will fuel a $6 billion uplift in its free cash flow through 2029. The company has investments in three LNG projects (Port Arthur LNG in the U.S. and Qatar's North Field East and North Field South) that should come online over the next few years. The energy company continues to secure customers for this gas. It recently signed a regasification agreement for the Dunkerque terminal in France and a sales agreement in Asia, both of which will begin in 2028. Additionally, its major Willow project in Alaska should start producing by 2029.
On top of all this, ConocoPhillips now plans to sell another $2.5 billion of non-core assets by the end of next year. These sales will give it additional cash to strengthen its fortress balance sheet or recycle into higher-quality assets.
The company's growing free cash flow and cash balance will enable it to continue returning more money to investors. ConocoPhillips aims to deliver dividend growth within the top 25% of companies in the S&P 500 in the coming years. It also aims to repurchase over $20 billion of its stock in the first three years of closing the Marathon deal.
A cash-producing juggernaut
ConocoPhillips now expects to capture another $1 billion in cost savings from its Marathon deal. It's also on track to produce $6 billion in incremental free cash flow from its investments in LNG and Alaska. That will give the oil company a lot of money to return to shareholders in the future. Its combination of growing cash flows and rising cash returns could provide the fuel to produce strong total returns in the coming years, making it an attractive oil stock to consider for the long term.
