For former major integrated energy firm ConocoPhillips (NYSE:COP), the years since its spilt from Phillips 66 (NYSE:PSX) haven’t exactly been that rosy.

The original idea was that the slower-moving downstream-based PSX was dragging down the faster-moving production assets on the COP side. Well, a major oil downturn later and ConocoPhillips turned out to be the wrong horse in a big way.

Dividends were slashed, spending was cut, and cash flows were bleeding. And COP took to a major restructuring plan.

Well, it seems that the plan may have finally bore some serious fruit for ConocoPhillips. This quarter helped cement that COP’s moves were well planned and that the firm is moving toward greatness once again. However, there still is some cloudiness on the horizon that it needs to see through first.

COP’s Great Quarter

It’s no secret that oil prices have once again started to move northward. After spending the last two or so years in the proverbial toilet, supplies have once again started to drop, and demand — thanks to a growing economy — has started to move higher.

For independent oil producers like COP, these higher prices have been a godsend. After all, when your profits are tied to the price of the natural resource you produce, the more expensive it is, the more you make.

And that’s exactly what has been happening at ConocoPhillips.

The firm’s latest quarter shows just how far oil prices have come. For the quarter, COP managed to report earnings of $1.6 billion, or $1.32 a share for the fourth quarter. That’s a big reversal of the $35 million or 3 cents per share loss realized in the same period a year ago.

Adjusted earnings came in at 45 cents, which was ahead of analysts’ estimates. Excluding special items, full-year 2017 adjusted earnings were $0.7 billion, or $0.60 per share. Again, that was a huge reversal from last year’s adjusted net loss of $3.3 billion, or $2.66 per share.

The story behind the beat was twofold.

For starters, ConocoPhillips did see higher total realized energy prices for the quarter and full year. During the fourth quarter, COP saw its prices rise to $46.10 barrels of oil equivalent (BOE) vs. the $33 BOE during last year’s fourth quarter. For the full year, prices averaged about $10 per barrel higher.

Secondly, COP has continued with its cost-cutting measures. Conoco has managed to dispose of billions of dollars’ worth of lower-quality assets, and reduced its overall CAPEX spending throughout the year. That continued during the fourth quarter. This coupled with higher overall oil prices managed to allow COP to boost its overall profits and cash flows.

It also allowed ConocoPhillips to do something else — reward shareholders in a big way.

With cash flows and earnings starting to pull away, COP decided to raise its dividend by 7.5%. Moreover, the firm expanded its already-announced buyback program by 33%. ConocoPhillips will now seek to retire an additional $2-billion worth of shares this year.

And as if that wasn’t enough, the firm completed the shareholder yield trifecta by increasing its debt reduction/repurchase efforts throughout 2018.

All in all, it was a great turnaround quarter for ConocoPhillips and its long-suffering shareholders.

ConocoPhillips May Be Getting Greedy

Here’s where the danger may lie for COP and its investors. It doesn’t matter what the commodity, but higher prices tend to bring out the worst in firms. We get more spending on production, and in turn, we get higher supplies. And COP is kind of going down that road.

Already, CAPEX spending in 2018 is set to rise, and while it is still less than estimated potential cash flows, the lucrative cushion that has allowed COP to do many of its amazing things for investors will be lower. And let’s not forget that a lot of its cash flows and hefty cash balance came from selling assets, over $13 billion of them during 2017.

ConocoPhillips is planning on boosting production this year and has once again started adding assets to its umbrella. During the quarterly report, COP announced that it agreed to buy a 22% interest in Anadarko Petroleum Corporation (NYSE:APC) in the Western North Slope of Alaska, as well as its interest in the Alpine pipeline.

The deal was only $400 million, and it is technically a bolt-on, but it could signal — along with COP’s very bullish stance on raising production — that the firm may be getting a bit greedy. Especially when you consider it still has about $20 billion debt, and OPEC hasn’t exactly been keeping its end of supply cuts going.

As we’ve seen in recent years, it doesn’t take much to send oil prices lower for longer than expected.

And while what COP is doing isn’t bad, the firm does have a history of going big at the wrong time. Investors may need to consider that before placing their bets with ConocoPhillips. Another couple of big spending/buy-out announcements and the pattern will be in place.

Still a Good Quarter for COP Stock

All in all, COP had a great quarter as rising oil and better cost controls helped it really return to profits. For the struggling energy stock, that’s all you could ask for. The share buyback boost and higher dividends should placate ConocoPhillips investors and send the stock higher.

We just need to watch its spending and how much it plans on increasing CAPEX or doing deals. Optimistic caution would be the play in COP stock.

Disclosure: None