Buy ConocoPhillips Shares Before the Split
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Shareholders in ConocoPhillips (NYSE: COP), could be in for a good 2012. On Dec. 2, the company gave an update on the progress it has made in its three-year plan (2010 to 2012) aimed at improving returns and creating shareholder value.
Its capital expenditure program is firmly positioned toward improving opportunities in its exploration and production segment, with a little over 92% of its planned $15.5 billion capital program being spent in this direction. The remainder is to go toward improving its refinery and marketing segment. On top of this, ConocoPhillips will be repurchasing $10 billion of its common stock through the year.
In 2010, the company announced that it would be seeking to raise around $15 to 20 billion by asset sales. Thus far, this program has yielded $8 billion and the agreed sale of interests in two U.S. pipeline companies will increase this to $10.5 billion. Proceeds from sales this year will be used to partly fund the share repurchase program.
As part of its strategic repositioning, ConocoPhillips will be splitting its business segments into two separately quoted companies in the second quarter of 2012. ConocoPhillips will become one of the world’s largest pure exploration and production companies, whilst the refining and marketing segment will be renamed as Phillips 66.
The exploration and production company will have assets spread around the world. The company expects to increase margins through its approach, and by selling non-core holdings and concentrating internal investment toward its highest returning projects is seeking to add greater value for shareholders.
On Jan. 11, ConocoPhillips announced two new executive appointments as it moves toward the split of the company. Phillips 66 has named C.C. Reasor as its Vice President in charge of Investor Relations, Strategy and Corporate Affairs, while the new ConocPhillips has hired Ellen DeSanctis as Vice President for Investor Relations.
Investment in ConocoPhillips at this point is all about the impending split, and return of value to shareholders by share repurchases. The company has increased its dividend for 15 years in a row, and shares currently yield 3.8%. With profits predominantly coming from the exploration and production side, rather than the lower-margin marketing side, it is likely that the new ConocoPhillips will have a higher rating than Phillips 66, and yield a better dividend.
At a trailing price to earnings ratio of 9.02, and with the share price (currently around $70.50) standing around the middle of its 52-week range of $58.65 to $81.80, I believe that buyers now will reap benefits from the new structure. The split will also allow more focused investment (either upstream or downstream). Notwithstanding economic shocks that might hit the market as a whole, I expect ConocoPhillips shares to rise into the split.
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