ConocoPhillips’s relative capital intensity
The chart below shows the capital intensity for a variety of US oil and gas producers. At $50 per barrel of Brent crude oil prices, ConocoPhillips (COP) has a fiscal 2017 capital intensity of ~70%.
In the above chart, capital intensity is expressed as a percentage of the fiscal 2017 estimated cash flow required to keep production flat. ConocoPhillips’s fiscal 2017 capital intensity can be put into a competitive context, allowing us to compare it with other large US E&P (exploration and production) companies such as EOG Resources (EOG), Pioneer Natural Resources (PXD), and Chesapeake Energy (CHK). When we make this comparison, ConocoPhillips’s relative capital intensity stands in the top decile.
Low capital intensity allows more headroom for free cash flow generation. It also helps generate high-grade investment returns. In order to generate free cash flow, ConocoPhillips is focusing on reducing its break-even costs.
We’ll study ConocoPhillips’s break-even costs in Part 10 of this series.