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.
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.