Should You Buy ConocoPhillips Stock With Oil Prices Below $80 a Barrel?

ConocoPhillips (NYSE: COP) has been a standout performer in the energy sector, even as oil prices have dipped below $80 a barrel. The company's strong financial performance and low-cost supply position have enabled it to generate significant cash flow, even at lower oil prices. As a result, ConocoPhillips has increased its dividend by 34% and plans to deliver dividend growth in the top 25% of S&P 500 companies in the future. The company also plans to ramp up its share repurchase rate from over $5 billion annually to more than $7 billion per year. With its robust cash flow generation and low cost of supply, ConocoPhillips' dividend growth strategy is sustainable at current oil prices.

ConocoPhillips' low cost of supply position enables it to generate cash at lower oil prices compared to its peers. The company has about 20 billion barrels of resources with a cost of supply of $40 per barrel or lower, with an average cost of supply of $32 per barrel. This allows ConocoPhillips to produce a lot of cash even when crude prices are in the $70s. For example, in the third quarter of 2024, ConocoPhillips generated $4.7 billion in cash from operations, despite the average oil price being $76.77 per barrel. This is because the company's total output was sold for an average of $54.18 per BOE, which is significantly lower than the average oil price. Additionally, ConocoPhillips' acquisition of Marathon Oil in 2022 further deepened its low-cost portfolio, adding over 2 billion barrels of resources with an estimated average cost of supply below $30 per barrel. This acquisition is expected to generate significant synergies, improving net margins and earnings through cost reductions and capital optimization.

The Marathon Oil acquisition is expected to have a positive impact on ConocoPhillips' cash flow and dividend growth. The acquisition is expected to be immediately accretive to the company's cash flow from operations and free cash flow. ConocoPhillips expects to capture more than $1 billion in cost and capital synergies within the first full year of closing the transaction, which occurred at the end of November. This outlook drives the company's view that it can return more cash to investors in the future. ConocoPhillips has already increased its dividend by 34% and plans to deliver dividend growth in the top 25% of companies in the S&P 500 in the future. The company also plans to ramp up its share repurchase rate from over $5 billion annually to more than $7 billion per year.

In conclusion, ConocoPhillips' strong financial performance, low-cost supply position, and dividend growth strategy make it an attractive investment option, even with oil prices below $80 a barrel. The company's robust cash flow generation and low cost of supply enable it to sustain its dividend growth strategy at current oil prices. The Marathon Oil acquisition is expected to further enhance ConocoPhillips' cash flow and dividend growth prospects. As a result, investors should consider buying ConocoPhillips stock, even with oil prices below $80 a barrel.