The dramatic shift in the price of oil this year has forced ConocoPhillips to reassess some of its projects. This financial year the company had a capital expenditure budget of $16.9 billion, which was the largest budget of any US oil firm. Next year’s planned spending on projects will be in the region of $13 billion. To try and put the market at ease a spokesman for the oil titan stated that there are no plans to reduce the headcount at the moment.
ConocoPhillips’s enormous capital expenditure this year was a sign of its confidence in the energy market but now traders are viewing it as a weakness. We have already heard of smaller oil companies struggling due to the collapse in the price of oil, and ConocoPhillips is the first major oil firm to tighten its belt due to current market conditions. The collapse in the price of oil is the latest chapter in the cool down in the commodities sector. Mining companies went through something similar when the metals market came under pressure.
Shares in ConocoPhillips are down 25% since this year’s high in July. The announcement that capital expenditure is being trimmed has managed to stem the decline in share price for now but I suspect more cautious words from the company are on the horizon while the energy market is depressed.
ConocoPhillips will release its full-year numbers in January 2015, and traders are expecting revenue of $56.25 billion and earnings per share of $5.73. These forecasts represent a 1.8% increase in revenue, and a 0.5% decline in EPS. The oil company will post its fourth-quarter numbers on 28 January next year, and the consensus is for revenue of $10.72 billion and EPS of 95.9 cents
Since the third-quarter figures were reported, the number of short positions on the stock has increased by 10%. The open short interest on the stock is now at its highest level since June.
Equity analysts are exceptionally bullish on the company and out of the 27 recommendations, 18 are buys and nine are holds. The average target price is $84 which is 29% above the current price. Investment banks are not as bullish on Exxon Mobil, on which there are 12 buy ratings, 16 holds and five sell ratings. Analysts' average target price is 9% above the market price.
The $62.50-$63 region has provided support for ConocoPhillips in the past which makes it the initial target to the downside, and a move through it would put $60 on the radar. A move higher is likely to encounter resistance at the 50-hour moving average of $68.