ConocoPhillips (COP) said it plans to cut oil production, reduce capital spending and suspend its share repurchase program as the U.S. oil company copes with the plunge in crude prices.
ConocoPhillips will slash gross production by 225,000 barrels of oil per day, cut its operating capital expenditures by an additional $1.6 billion to $4.3 billion. This is in addition to a $700 million reduction announced in March and brings the total cut to about 35% from its original guidance of $6.6 billion. The measures are expected to generate a total of $5 billion in cash savings, the Houston-based company said. Following the announcement, ConocoPhillips shares dropped as much as 5%.
“These actions reflect our view that near-term oil prices will remain weak, largely due to demand impacts from COVID-19 and continued oil oversupply,” said Ryan Lance, ConocoPhillips chairman and chief executive officer. “We are well-positioned with flexibility to take actions that we believe maintain our relative competitive advantages, as well as our ability to resume programs depending on the timing and path of a recovery.”
ConocoPhillips is joining a list of oil and gas producers who have been suffering from weak demand as a result of coronavirus-related lockdowns and as U.S. crude prices have plunged almost 60% this year.
Earlier this month, Paul Sankey analyst at Mizuho Securities downgraded ConocoPhillips to Neutral from Buy with a $33 price target, citing doubts about the company driving per share dividend growth when oil markets correct. Sankey, who expects oil volumes to decline over the next three years, added that a major driver of the company’s per share dividend growth outlook through the next decade was based on share repurchases.
Turning to the remainder of Wall Street analysts, the bulls have it. With 14 Buy ratings and 2 Holds assigned in the last three months, the consensus rating comes in as a Strong Buy. The $50.19 average price target implies 59% upside potential in the coming 12 months. (See ConocoPhillips stock analysis on TipRanks)
“We entered this downturn with several competitive advantages, including a very strong balance sheet with over $14 billion of liquidity, a diverse portfolio with low capital intensity, and significant financial and operating flexibility,” said Lance.
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