PLAYING IT SAFE
Call them the anti-Oxy: ConocoPhillips sticks to cautious, return-driven strategy.
Call them the anti-Oxy. While Occidental Petroleum and its CEO, Vicki Hollub, rolled the dice with a risky $38 billion acquisition of Anadarko Petroleum, Oxy’s Houston neighbor ConocoPhillips and its CEO, Ryan Lance, are content to stand pat with rising profits and stable growth.
Lance last week touted that strategy at the company’s annual meeting, continuing its run as one of Wall Street’s favorite oil companies. With investors more focused on returns than rapid growth, at least for now, ConocoPhillips is giving them what they want.
The company recently reported that its first quarter profit doubled to $1.8 billion from $900 million during the same period in 2018.
The bidding war between Occidental and Chevron for Anadarko captured the attention of the energy industry for the better part of month as Hollub and her team jetted from Houston to Paris to Omaha, Neb., to put together financing for its successful bid for The Woodlands company. Analysts said the deal could spur a new wave of mergers and acquisitions in the industry.
But don’t expect ConocoPhillips to join in. Big corporate acquisitions are tough to pull off because they carry a lot of overhead and debt, Lance told shareholders, making smaller asset and acreage deals much more appealing in most cases. Oxy is taking on substantial debt, including $17 billion from Anadarko.
Permian perspectives
“Those (acquisitions) are destructive to value; those are destructive to returns,” Lance said. “They have to be competitive in the portfolio, and that’s a pretty high bar.”
The prize in the Oxy-Chevron contest was Anadarko’s extensive holdings in the Permian Basin of West Texas, where Occidental is the top producer. While ConocoPhillips would admittedly love to have a larger presence in the booming Permian Basin, Lance said, the Houston company won’t overpay.
“It’s quality over quantity,” he said. “We certainly don’t have as much acreage as some of our competitors, but we’re in the heart of the Delaware (Basin).”
The Delaware is the western lobe of the larger Permian Basin. ConocoPhillips’ leading production area in the country, however, remains Eagle Ford shale in South Texas. The company is taking its time developing its Melissa Phillip / Staff photographer Permian holdings.
ConocoPhillips is more risk averse than other oil companies, valuing its favored position within the energy sector on Wall Street in recent years. ConocoPhillips’ focus is on organic growth and cost reductions to maintain profits and shareholder dividends even when U.S. oil prices dip below $40 per barrel, he said.
U.S. crude is trading at about $62 a barrel. But Lance was quick to note that prices plunged more than 40 percent to about $42 a barrel in the fourth quarter of last year. ConocoPhillips still earned $1.9 billion in the last three months of 2018, up from $1.6 billion in during the same period in 2017.
Unloading
“We’ve set up the company to be resilient to low oil prices,” Lance said. “We believe that volatility is here to stay. It’s a thinly balanced world.”
If anything, ConocoPhillips has looked to unload assets of late. Earlier this year, ConocoPhillips opted to move out of the North Sea, selling its United Kingdom position for $2.68 billion to London-based Chrysaor, a private-equity backed firm that has become a major player in the North Sea in recent years.