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ConocoPhillips’ Free Cash Flow Has Strengthened in 2018

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Dec. 4 2020, Updated 10:53 a.m. ET

Free cash flow

ConocoPhillips (COP) has strengthened its FCF (free cash flow) in the past one year. On a quarterly basis, COP’s FCF grew by 34.8% in Q3 2018. The rise in oil prices contributed to the rise in COP’s free cash flow. In part one, we discussed the impact of oil prices on COP’s earnings.

COP’s management estimates a minimum CAGR (compound annual growth rate) in cash flow of 10% until 2020. According to the management, the company requires a sustaining capital of $3.5 billion a year in case of flat production between 2018 and 2020. This is easily achievable from CFO (cash flow from operation) even if oil is at $40 per barrel.

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A look into COP’s capital expenditure and investments

Rising capital expenditures and investments might reduce a company’s FCF. In the second quarter of 2018, COP’s capital expenditure and investment were at the highest since Q1 2017. The lower 48 states have accounted for ~48% of COP’s total capital expenditure so far in 2018. Moreover, the rise in overall company capital expenditure coincides with the rise in oil prices discussed earlier.

Peer comparison

The FCF of Occidental Petroleum (OXY), Apache (APA), Devon Energy (DVN), and EOG Resources (EOG) changed by 48.8%, -8.2%, 218.9%, and 100.9%, respectively, in Q3 2018 compared to the previous quarter.

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