ConocoPhillips' (COP 1.23%) stock only lost 1% of its value last year. If we include dividends its total return was 2.78%, which is certainly better than a bank account. That being said, the company took investors on a wilder ride than its meager return would suggest as we see in the following chart.
As that chart notes the stock was up about 25% on the year in the early part of the summer. However, as oil prices began to descend so did ConocoPhillips' stock price. When all was said and done the company did underperform the market last year by a wide margin. However, on a total return basis the company did eke out a positive return, which is actually quite an accomplishment given the carnage in the oil industry last year. Let's take a look back at why ConocoPhillips' stock took a wild ride in 2014, but didn't end up crashing like so many other oil stocks.
A well-oiled machine
Operationally, ConocoPhillips enjoyed a very solid year in 2014. The company reported strong earnings and production in all three quarters it has reported thus far as it used its enviable low-cost position in the top U.S. shale plays to deliver strong, high-margin growth. As the following chart notes the company's breakeven price is less than $40 per barrel, which allows it to make money even at low oil prices.
Source: ConocoPhillips Investor Presentation
Shale, however, isn't the only area of focus as the company has a global portfolio that's loaded with high margin opportunities. As we see in this next slide the company is investing across a number of different opportunities to capture value for investors at all points of the commodity cycle.
Source: ConocoPhillips Investor Presentation
What this tells us is that the company is diversified both geographically as well as by project type. This has proven to be a real strategic advantage as ConocoPhillips has the flexibility to choose where it invests in order to generate its best returns, while its U.S. only peers don't have that flexibility.
The rock solid foundation
The other thing that has helped to keep the company's stock price afloat is its rock solid balance sheet. As the following slide shows, the company has an investment grade credit rating as well as a substantial cash cushion.
Source: ConocoPhillips Investor Presentation.
The company's balance sheet strength is actually quite rare in the energy industry as way too many energy companies loaded up on debt to take advantage of the shale boom. That debt has acted as a weight on the industry and there is a growing concern that a massive energy bond default wave could hit the industry over the next year if oil prices don't improve.
Not only is that not a worry at ConocoPhillips, but its stock has the potential to become a safe haven for investors seeking exposure to energy without the risk of default. Further, the current downturn actually opens up the door for ConocoPhillips to use its balance sheet strength to make value creating acquisitions should the right opportunity arise.
Investor takeaway
While 2014 was a rough year for energy investors, it wasn't as bad for investors in ConocoPhillips' stock. The company's diversification, unparalleled access to low-cost oil and rock solid balance sheet really proved to be a big competitive advantage last year. Looking ahead, the company could use that advantage to become even stronger as it's now in a prime position to take over a weaker rival, which could create a lot of value should oil prices head higher in the future.
