Summary
ConocoPhillips continues to make small divestitures at not so great prices.
The divestment multiples are not so high, so I wonder why the company is in such a rush to sell assets as its balance sheet is more than fine.
With exception of the Canadian deal last year I would like to see Conoco focus a bit more on growing production.
With shares having traded in close proximity to benchmark prices I see no real appeal at these levels, as a reasonably attractive earnings multiple is held back by challenged cash flow conversion.
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ConocoPhillips (COP) is making further efforts to reduce leverage and focus on core assets, by selling natural gas and NGL assets in the Barnett, in what is a very small deal. Nonetheless, Conoco continues to follows the divestiture strategy with relatively modest sale prices. With exception of the multi-billion deal in Canada last year which I really applauded, I am not big fan as the ¨rush¨ to sell assets is not necessary, with leverage being very modest.
Conoco´s shares have largely been tracking WTI prices and while earnings multiples seem reasonable (just a multiple or two below that of the market), cash flow conversion remains below the 100% mark. With free cash flow yields only approaching 4-5%, and production being down, I do not see the automatic appeal at these levels. This makes that I have neutral stance on the stock unless shares really start to lag versus benchmark oil prices.
