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ConocoPhillips’s Stock on a Steep Downtrend before 4Q15 Earnings

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ConocoPhillips’s stock movements in 2015

After declining for most of 2015, ConocoPhillips’s (COP) stock slowly started gaining momentum in late 3Q15. However, the worst was yet to come for the stock. After oil prices fell below $40 in December 2015, ConocoPhillips’s stock started declining. 2016 didn’t serve as a good start for upstream oil companies as oil prices fell further, below $30 per barrel. These are the lowest prices seen in the past 12 years.

 

 

As a result, ConocoPhillips’s stock’s decline accelerated, as we can see in the graph above. Year-over-year, the stock fell by ~45%. Since June 2014, crude prices have fallen ~72%. In 2016 alone, crude prices have dropped by 19% YTD (year-to-date).

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ConocoPhillips’s key strategies rolling on into 2016 and 2017

In 2015, ConocoPhillips took significant steps to reduce its capex, or capital expenditure. It revisited its 2015 capex guidance three times during the year. The majority of the capital spending is being directed towards ConocoPhillips’s unconventional assets in the Eagle Ford, Permian Basin, Bakken, and Western Canada. Only a small amount of capital is being allocated to oil sands and LNG (liquefied natural gas) over the next couple of years. By maintaining capital flexibility and focusing more on short-cycle and medium-cycle projects instead of long-cycle projects, ConocoPhillips anticipates a positive free cash flow by 2017.

Many oil and gas companies had slashed their 2015 capexes in response to the weakness in crude oil prices. Apache (APA) and Anadarko Petroleum (APC) slashed their 2015 capexes by ~65% and ~33%, respectively, from 2014. Marathon Oil (MRO) announced a capex reduction of ~40% from its 2014 capex. These companies combined make up ~9% of the Energy Select Sector SPDR ETF (XLE).

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