( ConocoPhillips NYSE:COP) has done a masterful job repositioning its operations in recent years so that it can thrive at lower oil prices. The oil giant has reduced costs and built up a massive cash position, which gives it almost unparalleled financial flexibility. Add in a nearly 3%-yielding dividend, and this energy company has become an ideal option for retirement-focused investors.
They'll get another glimpse into the company's ability to prosper over the long-term this week when it reports its third-quarter results. Here are three things retirement-focused investors should watch in that report.
One of the drivers of ConocoPhillips' excellent performance in recent years has been the strength of its operations. The oil producer has routinely delivered results toward the high-end of its production forecast thanks to its operating prowess. During the second quarter, for example, the company produced 1.29 million barrels of oil equivalent per day (BOE/D), which was above the high end of its 1.24 million to 1.28 million BOE/D guidance range. Fueling that high-octane performance was the company's "big three" shale plays -- the Eagle Ford, Bakken, and Permian Basin -- where output surged 26% year over year.
The company expects to build on that strong performance by producing between 1.29 million and 1.33 million BOE/D during the third quarter. Ideally, ConocoPhillips' output will come in at or above the midpoint of that range. If not, investors should look at what caused it to underperform. What we wouldn't want to see is a potentially thesis-altering issue such as poor performance at one of its "big three" shale plays since that could impact future growth.
ConocoPhillips' strong production results and its ability to keep a lid on costs enabled it to produce $2.9 billion of cash flow during the second quarter. That was enough to cover its capital expenses ($1.7 billion), dividend (about $300 million), and a large portion of its share repurchases ($1.2 billion). Meanwhile, it closed $600 million in asset sales, which helped boost its cash position to $6.9 billion at the end of the quarter.
That quarter marked the company's seventh straight one of generating free cash flow, and investors can hope that ConocoPhillips continued that trend during the third quarter. On one hand, it probably won't produce quite as much cash, since crude prices weren't as high during the third quarter. However, given the company's low-cost operations, it should have still produced more money than it needed to fund operations. If that wasn't the case, then investors should review what caused it to break its streak. As long as the company didn't encounter a potentially long-term issue, there's no reason to worry if it simply hit a bump in the road.
ConocoPhillips updated its full-year guidance when it posted its second-quarter numbers. It boosted its capital expense budget from $6.1 billion to $6.3 billion as a result of increasing its drilling plans in Alaska and the Eagle Ford shale. Meanwhile, it narrowed its full-year production guidance range from the initial view that output would be between 1.3 million-1.35 million BOE/D to 1.31 million-1.34 million BOE/D.
The company will likely update both numbers again this quarter since it recently closed the sale of its U.K. assets. Those properties produced about 70,000 BOE/D while the company expected to invest roughly $200 million into those assets this year. Aside from that impact, investors should see if the company makes any other changes to its outlook. The key thing to keep an eye on is something that would negatively impact the long-term view.
Many investors, as well as most Wall Street analysts, will look at ConocoPhillips' third-quarter report through a short-term lens. As such, the bulk of their focus will be on whether its quarterly earnings met expectations.
Investors with an eye toward retirement, on the other hand, should review the report with the long-term view in mind. As long as nothing cropped up that would affect the company's ability to continue thriving at lower oil prices, then the quarter should be a success. That's because the company's ability to continue prospering at lower crude prices will enable it to keep growing its cash flow. That would give it the funds to buy back more shares and further increase its dividend, which should enrich its shareholders over the long haul.
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