On this very day when the record U.S. crude oil futures price of $132.08 a
barrel became a reality, the very day after T. Boone Pickens predicted oil
prices will surge to $150 a barrel before the end of this year, we want to
spotlight one big player whose share price is fundamentally-speaking is still
deemed "reasonable" by many analysts even at the 52-week high.
ConocoPhillips
(NYSE:COP) has plans to build
an enormous refinery in Saudi Arabia, along with Saudi Aramco. It will be
located on the Red Sea side of the Arabian Peninsula. The plant is said to be
comparable to another Aramco refinery which cost about $10 billion and produces
about 400,000 barrels a day.
COP has a
market cap of over $144 billion, compared to a similar company, Marathon Oil
(NYSE:MRO) with a market cap of only $39 billion. That's because COP is one
behemoth of an energy giant. They've grown by acquisiton (for example Burlington
Resources) and organically. One of the organic ways they can profit further is
in their natural gas business.
That's why
Spectra Energy Corp (NYSE:SE)has signed an agreement with the
Houston energy giant ConocoPhillips to deliver up to 395 million cubic feet per
day of Rocky Mountain natural gas from the Clarington, Ohio, supply point in
York County, Pa.
Houston-based Spectra (NYSE: SE) plans to transport the natural gas via an
expansion of its Texas Eastern Transmission pipeline system, known as the Temax
Project.
The expansion will include adding about 33 miles of pipe from Marietta, Pa.
to Station 195 on the Transcontinental
Gas Pipeline Corp's pipeline system near Delta, Pa. The delivery is
expected to be at the Pennsylvania station by November of 2010. Another
lucrative feather in the COP cap.
Exploration and Production
Through its Exploration and Production (E&P)
segment, ConocoPhillips explores for and produces oil, natural gas and natural
gas liquids (NGL) throughout the world. Our portfolio includes strong legacy
producing assets in the Lower 48 U.S. states, Alaska, Canada, the United Kingdom
and Norway; growth opportunities offered through major development projects in
the Middle East, North Africa and the Asia Pacific region; and a global
exploration program.
On March 31, 2006, ConocoPhillips completed its
$33.9 billion acquisition of Burlington resources, one of the world’s largest
independent oil and natural gas exploration and production companies. In early
2007, ConocoPhillips expanded its position in the Canadian oil sands business by
creating an integrated heavy-oil business with EnCana Corporation of Canada. The
business includes ventures engaged in heavy-oil production in Canada and
heavy-oil processing in the United States.
As of December 31, 2007,
ConocoPhillips held exploration activities in 23 counties and production in 16,
with proved reserves in three additional countries. Fourth-quarter 2007
production was 2.3 million barrels of oil equivalent per day (includes LUKOIL
and Syncrude).
Exploration and Production Facts
As of year-end 2006, includes equity affiliates other than LUKOIL.
| Total Reserves |
9.4 BBOE1 |
| Assets |
$111.4 billion |
| Employees |
11,982 |
| Five-Year Reserve Replacement Average |
$290%2 |
| Five-Year Pro Forma Reserve Replacement Average |
$181%3 |
| Total Worldwide Production |
1,936 MBOED4 |
| Crude Oil Production |
972 MBD |
| Natural Gas Production |
4,970 MMCFD |
| Natural Gas Liquids Production |
136 MBD |
1. Excludes 243 MMBOE of Syncrude and 1,805
MMBOE from LUKOIL. Includes 1.1 BBOE associated with Venezuela.
2. Includes sales, acquisitions and equity
affiliates (including LUKOIL).
3. Assumes that Conoco and Phillips has been a
single, merged company for the full five-year period. Includes sales,
acquisitions and equity affiliates (including LUKOIL).
4. Excludes 21 MBOED of Syncrude and 401 MBOED
from LUKOIL. Includes 101 MBOED associated with Venezuela.
Many think that commodities are all in a bubble
phase right now but one glaring exception is Natural Gas. The
Kiplinger Letter reports, "Industrial, heating and other demand is sure to
remain strong, and prices may top $10/MMBtu next winter. Supplies are roughly
sufficient for normal weakther, but harsh conditions are likely to cause real
stress.
Fading quickly: Hopes that liquefied natural gas
will increase supplies. LNG is going to Asian and European buyers, who are
outbidding U.S.ones." This opens an enormous door of opportunity to catch the
rising trends in the undervalued resource of natural gas. See the chart below to
see the momentum of this trend. As I write natural gas stands at
$11.56.
One of the most exciting and underappreciated
segments of COP's growth is their Emerging Businesses.This segment develops new
technologies and businesses. It focuses on the power generation; development of
carbon-to-liquids technology through coal and petroleum coke; and alternative
energy and programs, such as advanced hydrocarbon processes, energy conversion
technologies, new petroleum-based products, and renewable fuels. It also offers
E-Gas, a gasification technology that produces high-value synthetic
gas.
Remember, COP as of December 31, 2007, had 8.72
billion barrels of oil equivalent of proved reserves. With every
dollar-per-barrel increase in the price of oil the company makes at least
another $8.7 billion of potential revenue.They have over $24 billion in
operating cash flow and they have levered free cash flow of almost $17
billion.
With trailing-twelve-month revenue of over $185
billion (which equates to over $115 per share of revenue) and quaterly revenue
growth (yoy) of 36% you can see why the company's stock is trading with a
trailing PE of only 12 and a forward PE of 8.
It is possible at some point soon that the stock
could pull back to it's 50 and 200-day moving average price of around $83 per
share which would probably be an excellent entry point for new investors. But
when you see companies like Apache Corp (NYSE:APA) trading at
$145 a share while COP is at $92, you realize again the potential growth in this
investment and their share price.
I'm long this stock and have been for over 3 years.
It isn't the most popular energy company among investors but the argument might
be made that it is one of the most underpriced of the big energy companies and
that today's share price does not fully value all its business segments and
operations.
Check out their web site at
http://www.conocophillips.com/about/index.htm .
Cruise through each section of the site and see for yourself why so many of us
are bullish on every aspect of this powerful enterprise and all the "cash cows"
that it owns. If they surprise everyone and get more involved in
green,
sustainable alternative energy projects then one could literally say,
"the sky is the limit" for the growth and profits they could experience in the
years ahead.
