Oil is a big topic right now as prices are falling yet again, dropping from $60 per barrel on June 30 to current prices around $45. That fall brings us back to March lows, and crude oil will have to make a stand from here.
Still, I believe the oil industry will get back on its feet in the long term, although I don’t yet have a good idea of how long that will take. Both the strong dollar and OPEC’s war on U.S. oil producers have placed huge pressure on the oil patch. Companies have continued to cut jobs, and major projects have been put on hold.
But today I want to talk about one company that I see as a great long-term hold as we continue to move through this slump. Just like the industry, it may take some time to get back on its feet, but when it does I expect it to come out on top.
ConocoPhillips (COP) is the largest independent exploration and production company in the world, operating out of 30 countries and employing more than 18,000 men and women. According to the company’s website, COP “exists to power civilization” as it explores for, develops and produces crude oil and natural gas.
The fall of oil prices has taken a toll on ConocoPhillips, along with many other companies in its industry, and COP stock has fallen 29% so far this year. In the third quarter alone, COP is down 19%.
The company reported second-quarter earnings on July 30, with revenue of $8.66 billion falling short of estimates and adjusted earnings of 7 cents per share coming in 3 cents better than expected. In comparison, COP saw earnings of $1.67 per share last year on revenue of $14.7 billion.
That being said, CEO Ryan Lance acknowledged the weakness, stating that the company will continue to position itself “for a period of lower, more volatile prices.” Management said that they will aim to cut 2015 capital spending to $11 billion from $11.5 billion and also lowered their operating expense forecasts to $8.9 billion from $9.2 billion. In the second quarter alone, ConocoPhillips managed to decrease these expenses by 11%.
This is not the first time in history that oil prices have slipped to depressed levels, and I remain confident that over the long term the supply/demand dynamic will shift, allowing prices to go back up. The oil industry will get back on its feet (eventually), and when it does, ConocoPhillips will be right in tow.
There may be a few bumps along the way, but COP is a great long-term hold that will come out of the oil slump more powerful than ever.
