Fueled by a Needle-Moving Acquisition, This Oil Stock Is Boosting Its Dividend by 34% and Plans to Buy Back $20 Billion of Its Stock

ConocoPhillips (NYSE: COP) is firing on all cylinders these days. The oil giant’s legacy business is performing extremely well. Meanwhile, the company is about to get a big boost from closing its needle-moving acquisition of Marathon Oil (NYSE: MRO).

Those factors are giving the oil stock the confidence to return a lot more cash to its shareholders. It’s boosting its dividend and share repurchase program.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

ConocoPhillips recently reported its third-quarter results. The oil giant produced over 1.9 million barrels of oil equivalent per day (BOE/d) during the period, surpassing the high end of its production guidance. It achieved record production in the lower 48 states, with strong results across its Permian, Bakken, and Eagle Ford operating areas. Its production rose 3% year over year after adjusting for acquisitions and asset sales.

That strong production helped mute some of the impacts of lower oil and gas prices. ConocoPhillips realized an average of $54.18 per BOE in the period, 10% lower than the year-ago quarter. As a result, its adjusted earnings declined from $2.6 billion to $2.1 billion.

However, the company produced robust cash flows during the third quarter. It generated $4.7 billion in cash from operations. ConocoPhillips used $2.9 billion to fund capital expenses to maintain and expand its operations. Meanwhile, it distributed $2.1 billion to investors, including repurchasing $1.2 billion of shares and making $900 million in cash payments (dividends and its variable return of cash (VORC)). That left the company with $7.1 billion of cash on its balance sheet at the end of the third quarter, along with another $1 billion of long-term investments.

ConocoPhillips expects the fourth quarter to be an active one. It anticipates closing its $22.5 billion merger with Marathon Oil. The deal will deepen its portfolio, adding high-quality, low-cost supply inventory near its existing positions throughout the lower 48 states.

The company also expects the transaction to be immediately accretive to its earnings, cash from operations, free cash flow, and return of capital per share. The company initially expected to capture at least $500 million in cost and capital synergies within the first year of closing the deal. However, it now anticipates significantly exceeding that tally.

On top of buying Marathon, ConocoPhillips also recently agreed to bulk up on its position in Alaska. It exercised its rights and signed agreements to buy additional working interests in the Kuparuk River and Prudhoe Bay units for $300 million. That deal will increase its earnings and cash flow from the state.

Story Continues