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Published: July 2, 2010
The past 12 months have been rough on Big
Oil investors...
The biggest and best-managed oil company, ExxonMobil (NYSE:
XOM), is down about -20% since this time last year and
currently trades at a new yearly low. French oil giant Total is
also down 20%.
Shares in fellow Big Oil players Statoil, PetroChina, and
Chevron (NYSE: CVX) have largely moved sideways. Even
Brazil's high-flying Petrobras (NYSE: PZE) - which found
billions of barrels of oil over the last few years - is down 16%
over the past 12 months.
This oil-sector weakness makes the uptrend in ConocoPhillips
(NYSE: COP) all the more impressive. As you can see, its
uptrend is holding up amazingly well considering the broad
market is down big since May:
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Here's the story behind this impressive
price action...
A year ago, while other majors raked in the cash, COP was losing
money. The market put yard-sale price tags on its assets. That
spurred CEO Jim Mulva to make some huge changes...
This year, COP has been busy slashing costs, divesting assets,
and building up cash. That's critically important because the
company has about $38 billion in debt it needs to rein in and
pay off.
In October 2009, the company announced it would divest $10
billion worth of assets. Since then, it bailed out of two giant
projects: the Shah Gas Field in Abu Dhabi and the Yanbu Refinery
in Saudi Arabia. (Costs to build the refinery soared from $6
billion to $12 billion. ConocoPhillips' decision to exit is a
good one.)
In March, ConocoPhillips disclosed it would sell half of its 20%
stake in Russian oil company Lukoil. The shares of Lukoil should
bring in about $5 billion. And in April 2010, the company
announced the sale of its 9% interest in Syncrude, the giant
tar-sand mining company in Alberta Canada, for $4.65 billion.
This is all part of Mulva's plan to put ConocoPhillips on a
profitable path. It's cutting back on low-profit refining. Its
focus will be on profitable oil and gas exploration... and
shareholder value.
In addition to culling its projects, the company's exploration
efforts are doing well. ConocoPhillips replaced 141% of its 2009
production of 865 million barrels of oil equivalent. About 30%
of that was due to the change in SEC rules regarding how
companies report oil sands as reserves.
Dumping the expensive projects will translate into much better
earnings for ConocoPhillips. In the first quarter of 2010, it
earned $1.47 per share. If the company can keep that up for four
quarters, its earnings will be $5.88 per share for the year.
That means, right now, we can buy its shares for under 10 times
this year's earnings - a bargain. And it offers a nice dividend,
too: 4%-plus.
Like most of the industry, ConocoPhillips shares fell with BP's
ham-fisted antics in the Gulf of Mexico. However, unlike many
companies in the industry, ConocoPhillips is enjoying a nice
uptrend. I recommend staying long the stock.
-- Matt Badiali
Editor
Growth Stock Wire
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