Can Investors Relax as Debt Decreases for ConocoPhillips?



ConocoPhillips’s net debt-to-EBITDA trend

As of 3Q17, ConocoPhillips’s (COP) net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is the lowest for the last four quarters. It has decreased from ~12.0x in 3Q16 to ~1.0x in 3Q17. Currently, it’s below its own historical average of ~6.0x for the last three years. The significant reduction in net debt-to-EBITDA can be attributed to the steep decline in net debt as well the increase in its trailing 12-month EBITDA.

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ConocoPhillips’s leverage

ConocoPhillips’s (COP) total debt-to-equity ratio (or leverage) decreased from ~79% in 3Q16 to ~69% in 3Q17. In the last four quarters, its total debt and shareholder equity have been on a declining trend. However, its total debt declined more than its shareholder equity, lowering its leverage. In the last four quarters, COP’s shareholder equity has fallen, mainly due to the fall of its retained earnings, from ~$31.9 billion in 3Q16 to ~$28.1 billion in 3Q17.

In comparison, ConocoPhillips’s peers Marathon Oil (MRO), Murphy Oil (MUR), and Devon Energy (DVN) have debt-to-equity ratios of ~55%, ~59%, and ~146%, respectively.

Overall, increased earnings due to the year-over-year increase in crude oil (USO) prices in 2017 and lower debt due to divestments have helped restore COP’s balance sheet. COP hopes that if it follows its plan to strengthen its balance sheet and energy prices stay firm or improve, its stock could be on a strong market footing.

Next, we’ll take a look at the debt situation for EOG Resources (EOG).


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