uploads///COP Q Net Debt to EBITDA

Should Investors Worry about ConocoPhillips’s Increased Debt Load?

Nicholas Chapman - Author

Nov. 20 2020, Updated 12:05 p.m. ET

Net debt

As of September 30, 2016, ConocoPhillips’s (COP) total debt stood at ~$28.7 billion. Most of COP’s debt, or ~$27.4 billion, is in the form of long-term debt obligations. With ~$4.3 billion in cash and cash equivalents and short-term investments, COP’s net debt comes in at ~$24.4 billion at the end of 3Q16.

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Net debt to EBITDA

Net debt to EBITDA is a debt ratio that shows how many years it would take for a company to pay back its debt in the current situation. As of 3Q16, COP’s net debt to EBITDA was at its highest in the last three years. COP’s current net debt to EBITDA is almost 150% higher when compared to its own historical average of ~2.0x in the last five years.

Why ConocoPhillips’s net debt to EBITDA is increasing

In 2016, despite higher trending crude oil prices, ConocoPhillips’s net-debt-to-EBITDA ratio is clearly showing an increasing trend. Year-to-date, COP’s net debt has risen ~8%, whereas its trailing-12-month EBITDA has fallen ~37% to ~$4.8 billion.

From 1Q14 to 3Q16, ConocoPhillips’s net-debt-to-EBITDA ratio has risen more than seven times. This fast increase was driven by a steep increase in COP’s net debt as well as a steep decline in COP’s earnings. From 1Q14 to 3Q16, ConocoPhillips’s net debt has risen ~81%, whereas its trailing-12-month EBITDA has fallen ~75%.

Other upstream players

Other upstream companies like Diamondback Energy (FANG), Devon Energy (DVN), and EOG Resources (EOG) have net-debt-to-EBITDA ratios of ~1.1x, ~3.9x, and ~2.4x, respectively. The Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas related equities from the S&P 500.


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