ConocoPhillips' CEO Ryan Lance. Source: ConocoPhillips.
ConocoPhillips recently reported better-than-expected second-quarter results. Driving this result was the company's solid production and substantial cost reductions. That said, while its quarterly results were strong, CEO Ryan Lance wanted investors to know that its underlying business was even stronger. That was one of the key messages he had for shareholders on the company's second-quarter conference call.
1. The dividend is safeLance led off his prepared comments by pounding the table, so to speak, on the security of the company's quarterly dividend. He did so by proclaiming, "The dividend is safe. Let me repeat that. The dividend is safe."
Later on in the call he went into a bit more detail on why the payout not only remains safebut why the company was actually increasing it during the current environment. He said:
So far this year the company has paid out $1.8 billion in dividends to investors, which is a pretty tidy sum. However, the company wanted to pay out just a little bit more going forward to send the message to its investors and the market that the dividend remains the company's top priority. That's a very bold statement given how many energy-related dividends have been either cut or eliminated over the past year.
2. We're on pace to be cash flow neutral by 2017One of the reasons there had been some concern surrounding the dividend is due to the fact that the company isn't yet cash-flow neutral. That said, the company reiterated its plan to be cash-flow neutral by 2017. In fact, Lance said that the company has "increasing flexibility and can achieve cash flow neutrality in 2017 and beyond at today's strip price, roughly $60 per barrel Brent." Said another way, the company is standing by its goal to be cash-flow neutral in 2017 at a $60 oil price, but it has flexibility to still meet that goal even if oil is lower as it can further trim its capital expenditures budget if necessary.
3. Focused on maintaining a strong balance sheetDespite the fact that ConocoPhillips does plan to outspend cash flow for the next two years, it isn't doing so at the risk of weakening its balance sheet. Lance said:
As he points out, one way the company plans to match its cash outflow with inflows is to sell assets. Currently, the company has several noncore assets up for sale that will bolster its balance sheet as it works toward actual cash-flow neutrality in 2017.
4. We can handle lower oil for longerOne of the buzz phrases in the industry over the past few months is the general idea that oil prices will now stay lower for longer. Lance made it clear on the call that it can handle that scenario with ease:
Said another way, ConocoPhillips has a lot of levers to pull in order to meet its target to grow production by 2%-3% per year through 2017 even if oil prices don't recover. Lance pointed out that the company can cut more spending, capture more efficiencies, and even sell more assets if it needs to in order to maintain its current plan. Bottom line, the company is well prepared to handle an oil price scenario of lower for longer.
5. We're positioned to win in the long termThe overarching theme of ConocoPhillips' second-quarter conference call is the fact that the company is not only built to endure the downturn but it is built for long-term success. Lance hammered this point home:
The company is focused not only on the short-term market weakness but on delivering long-term growth no matter what commodity prices do in the interim. By focusing on the entire cycle, Lance believes his team is building a company that will deliver even stronger future performance for investors.
Investor takeawayConocoPhillips made several things abundantly clear on its second-quarter conference call. Not only is the dividend not going away, it will continue to rise. Further, this is a company that can handle lower oil for longer as it has an increasing amount of flexibility. As a result, its CEO wants investors to know that ConocoPhillips is positioned to win over the long term.
The article 5 Things ConocoPhillips' CEO Wants You to Know originally appeared on Fool.com.
Matt DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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